Fitch Expects to Upgrade Fidelity National Information Services IDR to 'BB+' Following LPS Spin-off

NEW YORK--(BUSINESS WIRE)--Based on Fitch's review of the remaining operations of Fidelity National Information Systems (Fidelity) following the expected spin off the company's Lender Processing Services (LPS) business into a separately traded public entity planned for early July 2008, Fitch now expects to upgrade the following Fidelity ratings:

--Issuer Default Rating (IDR) to 'BB+' from 'BB';

--$900 million secured revolving credit facility (RCF) to 'BBB-' from 'BB+';

--Secured term loan to 'BBB-' from 'BB+';

--4.75% senior notes (equally and ratably secured with the bank facility) to 'BBB-' from 'BB+'.

The Rating Outlook is expected to be Stable.

The ratings upgrade is based on the following considerations:

--Fitch believes that Fidelity's greater focus on integrating acquired assets and executing on cross-selling opportunities should enable the company to reduce debt with excess free cash flow given Fidelity's reduced focus on an acquisition growth strategy.

--Fidelity has completed its acquisition and integration of EFunds and is on track to achieve $65 million in annual cost synergies over the next two years which represents 200 basis points in incremental margin.

--Fitch believes the expected spin-off of the company's LPS business into a separately traded publicly entity is neutral to Fidelity's overall risk profile.

The ratings and Stable Outlook are supported by the following considerations:

--A significant portion of Fidelity's revenue is recurring in nature under multi-year contracts.

--Fidelity offers a diversified product portfolio serving several market segments, including small regional financial institutions, large tier-one financial institutions and retailers.

--Fidelity serves a diverse customer base of over 13,000 financial institutions with more than 20% of its revenue from outside the U.S.

--Fitch estimates pro forma leverage (total debt/operating EBITDA) to be 3.1 times (x) and expects this figure to decline to below 3.0x in the next year through debt reduction and EBITDA growth. Fitch expects free cash flow to range upwards of $300 million in the next year with opportunity for growth, particularly as the company's capital spending is reduced.

Ratings concerns include:

--Achieving revenue growth targets through cross-selling incremental products and services across the company's customer base could be challenging given the presence of well-capitalized and well-established competitors in a market with historically low customer churn rates.

--Fidelity's primary competitors in both the card and core processing markets are both larger and well entrenched.

--Potential use of free cash flow to fund share buybacks or acquisitions in lieu of debt reductions, although the company's Term A Loan does have a mandatory yearly amortization schedule.

--Fidelity's free cash flow conversion rate, as a percentage of EBITDA, is below the average peer ratio.

Liquidity as of March 31, 2008 was solid with $328 million in cash and approximately $570 million available on a $900 million secured revolving credit facility maturing January 2012. Fitch expects pro forma 2008 free cash flow to approach $300 million and further support liquidity. Total debt as of March 31, 2008 was $4.3 billion and consisted of $330 million drawn on the secured revolving credit facility, $2 billion in a secured term loan A maturing January 2012, $1.6 billion in a secured term loan B maturing in January 2014, and $200 million in unsecured notes maturing September 2008. Fitch expects the company to repay the $1.6 billion term loan B in conjunction with its spin-off of LPS, which has separately refinanced the full amount of the term loan, resulting in pro forma debt of $2.7 billion.

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