Approximately $4 billion of debt affected
New York, November 14, 2012 -- Moody's Investors Service lowered all of Pitney Bowes, Inc.'s
("Pitney Bowes") long term debt ratings, including senior unsecured
to Baa2 from Baa1, and affirmed the short term rating at P-2.
The rating outlook is stable. The downgrades reflect Moody's
concerns that the pervasive secular headwinds in Pitney Bowes' North
America and International Mailing segments and a weaker macroeconomic
environment could delay the company's turnaround efforts.
RATINGS RATIONALE
Pitney Bowes' Baa2 senior unsecured rating reflects the sizable market
position of its core postal metering business within the mature office
equipment industry. Nonetheless, Pitney Bowes faces particularly
tough business challenges as its US meter equipment installed base is
expected to continue to shrink due to the secular decline in traditional
mail delivery. Moody's also expects Pitney Bowes to experience
increasing competition from alternative online providers, especially
as the company transitions its business model to expand the mix of revenue
to digital hybrid, cloud-based and software offerings.
Given the continued erosion in core mailing and production mail volumes,
Pitney Bowes could target more frequent and larger acquisitions to offset
revenue decline in the core business units and supplement its organic
growth initiatives, which could also pressure its credit profile.
The stable outlook reflects Moody's view that despite the anticipated
deterioration of revenues and operating margins in the near term,
the company is in a position to address its business challenges,
given its leverage position and longer term cash flow generating potential.
The ratings and outlook are also supported by the company's ability
to devote greater allocation of its cash resources to credit protection
measures versus shareholder remuneration.
Pitney Bowes' ratings could be downgraded if debt remains at current
levels absent EBITDA growth, the persistent revenue contraction
is not reversed, the company loses greater market share, or
does not maintain annual free cash flow above $200 million.
Pitney Bowes' ratings could be upgraded if Moody's sees tangible
progress in stemming the ongoing revenue erosion and stabilization of
operating margins, and the company maintains leverage in the low
2 times levels.
Pitney Bowes' liquidity profile is adequate with $425 million
of balance sheet cash as of September 30, 2012, the expectation
of modest free cash flow and that its near-term debt maturity has
been largely pre funded. Due to the recurring nature of roughly
80% of its revenue, Pitney Bowes generates steady free cash
flow on an annual basis, with seasonal quarterly fluctuations.
Going forward, Moody's expects normalized free cash flow over
the next twelve months in the range of $100 - $150
million, after about $320 million in common and preferred
dividends. Pitney Bowes also maintains access to external funding
sources, including a $1 billion unsecured revolver,
which has full availability at September 30, 2012. The company
recently raised $220 million in term loan financing from its relationship
banks to partially prefund upcoming 2013 maturities. Moody's
expects the company to maintain sufficient liquidity to meet its upcoming
maturities and have unfettered access to all segments of the capital markets.
Moody's also lowered the ratings on the preferred stock issued by
Pitney Bowes International Holdings, Inc. ("PBIH")
an indirect wholly owned subsidiary of Pitney Bowes to Ba1 from Baa3 Although
the preferred stock holders have a structural priority claim on the cash
flows from certain of Pitney Bowes international subsidiaries, relative
to unsecured Pitney Bowes holders, PBIH operations generate modest
cash flows relative to the US and have support agreements from Pitney
Bowes.
Summary of Rating Actions:
Pitney Bowes, Inc.
Senior Unsecured -- Downgraded to Baa2 from Baa1
Senior Unsecured Shelf Rating - Downgraded to (P)Baa2 from (P)Baa1
Subordinate Shelf Rating - Downgraded to (P)Baa3 from (P)Baa2
Preferred Shelf Rating - Downgraded to (P)Ba1 from (P)Baa3
Short term rating -- Affirmed P-2
Rating outlook is stable
Pitney Bowes International Holdings, Inc.
Preferred Stock Rating - Downgraded to Ba1 from Baa3
Rating outlook is stable
The principal methodology used in rating Pitney Bowes, Inc was the
Global Technology Hardware Industry Methodology published in September
2010. Other methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
Pitney Bowes, headquartered in Stamford, Connecticut,
is a global provider of integrated mail, messaging and document
management solutions that includes postage meters, mailing equipment
and related document messaging services and software, mail and marketing
services. Revenues for the twelve months (LTM) ended September
30, 2012 were $5.1 billion.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
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the lead rating analyst and to the Moody's legal entity that has issued
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Gerald Granovsky
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Jankowitz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's lowers Pitney Bowes' long term ratings; sr. uns. to Baa2; outlook stable
