MOODY'S CONFIRMS DELUXE CORPORATION'S RATINGS (SR. UNSEC. LONG TERM: A1; SHELF: (P) A1; SHORT TERM: PRIME-1) WITH STABLE OUTLOOK
Moody's Investors Service, Inc. has confirmed Deluxe Corporation's long-term debt rating (A1 senior unsecured, (P) A1 shelf) and short-term commercial paper rating of Prime-1 with a stable outlook. The confirmation follows the announcement that Deluxe plans to pursue the separation of its eFunds, iDLX Technology Partners and Government Services businesses from Deluxe's traditional Paper Payment business. While there are several conditions before the split-off will occur, including a tax-free ruling, that could derail the plan, Moody's believes the A1 rating is appropriate, whether the split-off occurs or not. The rating confirmation is premised upon the maintenance of strong credit metrics, continued strong core Paper Payment Systems' profitability, improved business efficiencies and focus following a multi-year restructuring program, and the continued growth and evolution of Deluxe's core competencies into and onto the Internet.
Under the announced separation plan, Deluxe will combine its eFunds and iDLX Technology Partners and Government Services businesses into a separate, independent publicly traded company, eFunds Corporation. Deluxe has filed to sell a minority interest in eFunds to the public through an Initial Public Offering. Following the IPO, Deluxe intends to split-off eFunds Corporation through an exchange offer that would provide Deluxe shareholders the opportunity to exchange, on a tax-free basis, shares of Deluxe common stock for shares of eFunds Corporation. A split-off is conditioned upon a favorable tax ruling from the Internal Revenue Service. If a favorable tax ruling is received, Deluxe plans to complete the exchange offer by year-end 2000.
Assuming the split-off takes effect, the new Deluxe will be more focused on its core check printing and business forms segments, where Deluxe's Paper Payment Systems is the nation's leading check printing operation. PPS provides checks and related products to consumers and small businesses through financial institutions, direct marketing, the Internet, and retail channels. Deluxe has a dominant market share in the check printing segment. This foundation has enabled the company to develop new electronic payment products and services, many delivered through the Internet, and to leverage its relationships with financial institutions into new avenues for growth. Moody's expects Deluxe to continue to develop the e-commerce opportunities that have sustained growth in PPS revenues, core operating cash flows and profitability despite a mature check printing industry.
In order to further expand its core businesses, Moody's expects Deluxe to modestly increase its capital investment over the medium term, to selectively make acquisitions that fit within its existing and retained business lines, and to seek further operational efficiencies that will improve operating margins.
Deluxe is expected to retain its traditional conservative financial policies, prudently balancing financial assets, capital investments and moderate sized acquisitions, so that a conservative capital structure is maintained and credit metrics are not materially impacted relative to Deluxe's current rating level.
Deluxe Corporation, headquartered in St. Paul, Minn., is a holding company composed of four business units: Deluxe Paper Payment Systems, eFunds, iDLX Technology Partners and Deluxe Government Services. These businesses are leaders in providing electronic payment solutions, paper payments and related products, IT software consulting and electronic delivery of government benefits.
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