Fitch Rates Fidelity National Information Services' Proposed Sr Note
NEW YORK -- May 27, 2014
Fitch Ratings has assigned a 'BBB' rating to Fidelity National Information
Services, Inc.'s (FIS) proposed three and 10 year senior unsecured note
offerings. Proceeds are expected to be used to refinance the 7.875% senior
unsecured notes due 2020 (callable in July 2014) and reduce borrowings under
the company's term loans. A full list of ratings follows at the end of this
The new notes are expected to be issued under a new indenture, will be pari
pasu with FIS's existing debt and have terms and conditions materially similar
to its existing senior notes. The transaction, as proposed, is expected to be
credit neutral as it is not expected to materially change leverage while
KEY RATING DRIVERS:
The ratings reflect FIS's 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's
combination of organic growth and cash-funded acquisitions lends to
expectations for significantly reduced volatility in its balance sheet and
The ratings also reflect FIS's strong free cash flow (FCF) 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.
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 2.8x (or
3x 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, FCF before dividends would be expected to
remain near 15% of total adjusted debt (13.3% currently).
FIS's 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% for the last 12 months ending March 2014) and FCF 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, a more conservative approach to capital
allocation from management and recent significant increase in the dividend
rate, Fitch believes, reduces the probability of such an event. While higher
dividends are not generally considered credit friendly, Fitch believes that
for FIS, this should reduce the potential for activist shareholder pressure in
the future. FIS's recently raised its quarterly dividend 9% to $0.24 per share
($0.96 per year or approximately $280 million in total).
Rating strengths include the following:
--Stable end demand;
--Strong diversification, with increasing international diversification
although highly dependent on small- and mid-tier banks;
--High switching costs.
Rating concerns include:
--History of debt 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 March 31, 2014 was solid with cash of $738 million and
approximately $1.6 billion available under a $2 billion senior unsecured
revolving credit facility, expiring March 2017. Additionally, FCF has averaged
near $600 million annually over the past three years.
Total debt as of March 31, 2014 was $4.8 billion consisting principally of:
--$443 million outstanding under the aforementioned senior unsecured revolving
--$1.9 billion outstanding under a senior unsecured term loan-A maturing March
--$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.
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's value to
customers, as well as growth in the international business which provides
--Commitments from management to maintain leverage at or below 2x with
adjusted FCF 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's
Fitch currently rates FIS as follows:
--Issuer Default Rating at 'BBB';
--Senior unsecured revolving credit facility at 'BBB';
--Senior unsecured term loans at 'BBB'; and
--Senior unsecured notes at 'BBB'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
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
Rating Technology Companies
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Fitch Ratings, Inc.
Rolando Larrondo, +1-212-908-9189
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Brian Yoo, CFA, +1-212-908-9175
Megan Neuburger, +1-212-908-0501
Brian Bertsch, +1-212-908-0549
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