Fidelity Extends Credit Agreement – Analyst Blog

A leading provider of banking and payment technology to financial institutions and government organizations, Fidelity National Information Services Inc. (FIS) completed an amendment and extended its existing credit facility, primarily to refinance its existing Term loan B related to the acquisition of Metavante Technologies Inc.

 

Fidelity’s amended and extended credit agreement, totaling $3.4 billion, includes two loan categories based on the date of maturity. The first one maturing on July 2014 comprises $2.0 billion of Term loan A and revolving capacity of $933.0 million.

 

The second loan facility scheduled to mature in January 2012 includes $397.0 million of Term loan A and $103.0 million of revolving loan capacity.

 

Fidelity is expected to gain approximately $560.0 million from Term Loan A and revolving capacity will likely increase by approximately $140.0 million.

 

Under the amended credit agreement, Fidelity also plans to borrow $1.4 billion through a new Term loan B.

 

Metavante was acquired by Fidelity in October 2009, for $4.4 billion. As of March 31, 2010, Term Loan related to Metavante was $792.6 million and was previously scheduled to mature on November 2014.

 

Fidelity is expected to use a part of the incremental fund to finance its recently announced recapitalization and share repurchase commitments.

 

Fidelity’s board of directors recently authorized a leveraged recapitalization plan. After its completion, Fidelity will likely buy back up to $2.5 billion of its common stock at a price range of $29.00 to $31.00 per share through a modified Dutch auction tender offer.

 

Under its existing three-year share repurchase authorization, 13.6 million shares remain available for buyback. This will increase shareholder’s wealth.

 

Fidelity’s growth in the recent years was primarily driven by acquisitions, funded partly in cash and the remaining in long-term debt. Fidelity’s balance sheet is highly levered. As of March 31, 2010, long-term debt was $2.81 billion, with debt-capital ratio of 22.1%. We believe the newly amended and extended agreement will increase long-term debt by at least $2.0 billion.

 

Fidelity faces stiff competition from Fiserv Inc. (FISV), International Business Machines (IBM), Accenture Plc (ACN), Alliance Data Systems (ADS), MasterCard Incorporated (MA) and Visa Inc. (V).        

 

We maintain a neutral rating on a long-term basis. Fidelity has Zacks #3 Rank, implying a short term neutral rating.