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Fitch Upgrades Fidelity National Information Services' IDR to 'BBB'; Outlook Stable
February 24, 2014 / 9:27 PM / in 4 years

Fitch Upgrades Fidelity National Information Services' IDR to 'BBB'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, February 24 (Fitch) Fitch Ratings has upgraded the ratings for Fidelity National Information Services, Inc. (FIS) including its Issuer Default Rating to 'BBB'. The Rating Outlook is Stable. The ratings upgrade reflects the following considerations: FIS has furthered its commitment to maintaining a conservative balance sheet and disciplined approach to capital allocation. The company is several years into its current strategy of optimizing the business following an aggressive and often debt-financed acquisition growth strategy. FIS' combination of organic growth and cash-funded acquisitions lends to expectations for significantly reduced volatility in its balance sheet and credit metrics going forward. Underlying the ratings upgrade is the company's strong free cash flow and relatively modest debt level. In the past this has led to higher event risk for the credit. Fitch believes FIS now has a growing business need for a strong investment grade rating as it supports the company's strategy to attract larger bank clients. Fitch also believes the company's dividend policy, which was raised 9% at the end of 2013, helps support the stock valuation and has led to a reduction in event risk. KEY RATING DRIVERS: Fitch expects the company to maintain leverage over the long-run at or below 2.5x and to fund share repurchases principally through organic cash generation. Fitch estimates leverage (total debt / operating EBITDA) at 2.6x (or 2.8x when adjusted for operating leases). Fitch would expect leverage to remain near 2.5x given the current rating category with the potential for modest temporary spikes. Alternatively, free cash flow before dividends would be expected to remain near 15% of total adjusted debt (14% currently). FIS' ratings are supported by many qualitative factors which also drive significant event risk. Specifically, FIS competes in a relatively stable market with high barriers to entry, significant recurring revenue and long-term contracts. The company's strong profitability (EBITDA margins of 28.5% in 2013) and free cash flow generation are evidence of this position in the marketplace. Fitch believes that a leveraged recap or leveraged buyout event remains the biggest risk for the credit. However, Fitch believes a more conservative approach to capital allocation from management and recent significant increase in the dividend rate reduces the probability of such an event. While higher dividends are not generally considered credit friendly, Fitch expects that this should reduce the potential for activist shareholder pressure on FIS in the future. The company recently raised its quarterly dividend 9% to $0.24 per share ($0.96 per year or approximately $280 million in total). This represents a 1.8% dividend yield based on the current stock price. Rating strengths include the following: --Stable end demand; --Strong diversification, with increasing international diversification although highly dependent on small- and mid-tier banks; --High customer switching costs. Rating concerns include: --History of debt financed M&A and shareholder friendly actions; --High fixed cost business; --Potential regulatory changes; --Increasing competition from non-traditional competitors such as IBM which has greater resources. Liquidity as of Dec. 31, 2013 was solid with cash of $548 million and $2 billion available under a $2 billion senior unsecured revolving credit facility, expiring March 2017. Additionally, free cash flow has averaged near $600 million annually over the past three years. Total debt as of Dec. 31, 2013 was $4.5 billion consisting principally of: --$29 million outstanding under the aforementioned senior unsecured revolving credit facility; --$2 billion outstanding under a senior unsecured term loan-A maturing March 2017; --$250 million in 2% senior unsecured notes due April 2018; --$500 million in 7.875% senior unsecured notes due July 2020; --$700 million in 5% senior unsecured notes due March 2022; and --$1 billion in 3.5% senior unsecured notes due April 2023. Fitch has upgraded the ratings for FIS as follows: --IDR to 'BBB' from 'BBB-'; --Senior unsecured revolving credit facility to 'BBB' from 'BBB-'; --Senior unsecured term loans to 'BBB' from 'BBB-'; --Senior unsecured notes to 'BBB' from 'BBB-'. The Rating Outlook is Stable. RATING SENSITIVITIES: Positive: Future developments that may, individually or collectively, lead to positive rating action include: --Continued growth in the business driven by cross-selling of products and services across the domestic customer base, which increases FIS' value to customers, as well as growth in the international business which provides further diversification. --Commitments from management to maintain leverage at or below 2x with adjusted free cash flow near 20% of total adjusted debt. Negative: Future developments that may, individually or collectively, lead to negative rating action include: --More aggressive capital distribution to shareholders, particularly if these actions are in response to changes in equity valuation. --Significant changes to the structure of the financial services sector which could lead to the loss or consolidation of a significant portion of FIS' customer base. Contact: Primary Analyst Jason Paraschac, CFA Senior Director +1-212-908-0746 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Jamie Rizzo, CFA Managing Director +1-212-908-0548 Committee Chairperson Megan Neuburger Senior Director +1-212-908-0501 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: Additional information is available at ''. Applicable Criteria and Related Research: --'Corporate Rating Methodology', dated Aug. 5, 2013; --'Rating Technology Companies', dated Aug. 9, 2012. Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Rating Technology Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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