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Global Credit Research - 21 Sep 2010
Approximately $1.3 billion of rated debt instruments affected
Toronto, September 21, 2010 -- Moody's Investors Service (Moody's) affirmed Cenveo Corporation's
(Cenveo) B2 corporate family and probability of default ratings;
the ratings outlook remains negative. At the same time, ratings
for individual debt instruments were also affirmed, as was the company's
SGL-3 speculative grade liquidity rating (indicating adequate liquidity
The following lists Cenveo's ratings and today's rating actions:
..Issuer: Cenveo Corporation
....Corporate Family Rating: Affirmed
....Probability of Default Rating: Affirmed
....Rating Outlook: Negative
....Speculative Grade Liquidity Rating:
....Senior Secured Bank Credit Facility,
Affirmed at Ba2 (LGD2, 16%)
....Senior Secured Regular Bond/Debenture,
Affirmed at B2 with the Loss Given Default Assessment revised to LGD3,
49% from LGD3, 48%
....Senior Subordinated Bond/Debenture,
Affirmed at Caa1 (LGD5, 89%)
Cenveo is weakly positioned at the B2 rating level and a significant near
term improvement in leverage and coverage measures is required to substantiate
the existing ratings (LTM Debt-EBITDA incorporating Moody's
standard adjustments is 8.4x). Term loan cash sweep provisions
will mandate some debt reduction early in 2011 and we also anticipate
adjusted debt reduction to result from ongoing facilities closures and
other steps that will reduce operating lease exposure. Beyond these
two one-time items, we see little scope for additional near-to-mid
term debt reduction since, subsequent to this quarter's impact
of last year's Nashua acquisition being in place for a full year,
we expect revenue to grow at less than GDP expansion rates, and
with recent cost cutting initiatives having consumed margin expansion
potential, we see little opportunity for cash flow growth.
In turn, we expect this circumstance to motivate management to pursue
additional acquisitions in support of long term growth aspirations.
However, the company has almost no financial flexibility at the
B2 rating level to pursue material acquisitions on anything but a share
exchange basis. In turn again, we are concerned that management
will suppress capital spending as a means of creating free cash flow that
can augment financial flexibility. Given the manufacturing and
distribution component of the company's activities, we are
concerned that prolonged capital rationing will undermine relative competitive
positioning and have a longer term adverse impact on revenue and cash
flow. Lastly, given the company's circumstance,
it is vital that it maintain liquidity to address unexpected shocks.
At this juncture, the company has adequate liquidity arrangements.
Cenveo is weakly positioned at the B2 rating level and a significant improvement
in leverage and coverage measures is required to substantiate existing
ratings. Owing to risks that the company may not be able to reduce
its leverage into the mid 6x range immediately after the first quarter
of 2011 when cash sweep payments are made, the ratings outlook remains
What Could Change the Rating - Up
A ratings upgrade is not contemplated within the rating horizon.
However, among other things, Moody's would consider an upgrade
or positive outlook if TD/EBITDA leverage were expected to be sustained
at below 6x (with Moody's standard adjustments) and positive free cash
flow were expected to be sustained at near 10% of total debt.
A rating upgrade would also have to involve assurance of solid liquidity
arrangements, improved industry fundamentals and normal capital
What Could Change the Rating - Down
Moody's would consider Cenveo's ratings for potential downgrade if free
cash flow generation was expected to be nominal (or negative) for a prolonged
period and/or if TD/EBITDA was expected to be in excess of 7x, once
again, on a sustained basis. A debt-financed acquisition
of more than nominal size and/or adverse liquidity developments could
also result in downward rating pressure.
Headquartered in Stamford, Connecticut, Cenveo Corporation
(Cenveo), a wholly-owned subsidiary of Cenveo, Inc.
(a publicly traded holding company), is involved in commercial printing
and packaging, envelope, form and label manufacturing,
and publishing services.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Canada Inc.
Moody's affirms Cenveo's ratings and maintains negative outlook
70 York Street
Toronto, ON M5J 1S9
No Related Data.
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