OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to Fidelity National Information Systems, Inc.'s (FIS) offering of senior unsecured notes. FIS's Long-Term Issuer Default Rating (IDR) is 'BBB'. The Rating Outlook remains Negative. At June 30, 2016, the company reported $11.1 billion in total debt outstanding.

Proceeds from the offering are expected to be used to repay all or a portion of the approximately $2.2 billion outstanding on its revolving credit facility (RCF), including accrued interest. Any excess proceeds would be used for general corporate purposes.

Fitch continues to rate the company's RCF 'BBB'. The terms were recently amended, including the extension of the maturity date of the RCF to August 2021 from December 2019.

KEY RATING DRIVERS

--Highly Stable Market Demand: FIS's customer base in the Integrated Financial Solutions (IFS) segment, mid-tier U. S. banks, are highly reliant on the company for their internal operations. Customer engagements are typically secured by long-term contracts and renewal rates are very high. A majority of revenue is contract based (87% recurring revenue) or account volume based with a minority amount exposed to cyclical changes in consumer spending. As a result, revenue, margins and cash flow tend to be highly predictable. EBITDA margins are relatively strong, given standard solutions are supplied to many customers.

--Growth in GFS: FIS's Global Financial Solutions (GFS) segment is expected to produce revenue growth in the mid-single digits, although Fitch notes that the segment has been affected by global economic uncertainty. Recurring revenues are lower than in IFS but still relatively high at about 68% of revenues. In this segment, solutions for the large global financial institutions are generally customized, and its EBITDA margins are reflective of the more personnel intensive nature of its business.

--Sungard Integration: FIS is in the midst of integrating its late 2015 acquisition of SunGard, the ultimate parent of SunGard Data Systems, Inc. (SunGard). Fitch believes the transaction is strategically positive in the long-term but that the initial leverage and the timeline for FIS to reduce leverage to under 3x warrants a Negative Rating Outlook.

--Product Expansion: The SunGard transaction provides FIS with a strong entry into adjacent markets (serving financial institutions). From a product set basis overlap has been minimal, although the two companies historically served many of the same institutions.

--Commitment to Investment Grade Ratings: Management has reconfirmed its commitment to having a solid investment grade rating and maintaining reasonably conservative credit metrics. Fitch believes management is committed to reducing leverage to 2.5x or lower over the long-run following the acquisition of SunGard. Fitch believes the company's increasing focus on growing its business with large Tier 1 banks creates a business need for a solid investment grade rating.

--Moderated Event Risk: The acquisition of SunGard and the expected continuation of the company's existing dividend policy may reduce near-term event risk. The potential for event risk stems from the stable and solid free cash flow inherent in the business.

KEY ASSUMPTIONS

--Fitch expects pro forma revenue growth of low - to mid-single digits;

--EBITDA margins are expected to be over 30% and expand slightly in the following years;

--Fitch's base case incorporates the full run rate of synergies of $200 million annually to be reached in 2017 (FIS states that it is on track to exceed its 2017 target of $200 million);

--Near-term expected cash flows incorporate certain upfront expenses to achieve synergies;

--Fitch does not expect FIS to engage in stock buybacks and will focus on reducing debt until it approaches its target range.

RATING SENSITIVITIES

Positive Rating Action: 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 2.25x.

Negative Rating Action: 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. Leverage above 3.0x for a sustained period would be a potential cause for a negative rating action.

LIQUIDITY

Liquidity as of June 30, 2016 was solid with cash of $765 million ($502 million held outside the U. S.) and approximately $1.4 billion available under a $3 billion senior unsecured revolving credit facility, expiring December 2019. Amendments to the RCF extended the maturity to August 2021, and FIS also used the amended RCF to repay the $600 million term loan due March 2017, reducing pro forma availability to approximately $800 million. The maximum permitted leverage on the existing credit agreement and term loan agreement is 4.25x with step-downs beginning on Dec. 31, 2016.

Additionally, FCF (after dividends) has been more than $400 million annually over the past several years.

Debt Maturities: As of June 30, 2016, on a pro forma basis FIS had approximately $300 million and $2.5 billion in long-term debt due in 2017 and 2018, respectively.