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13 Aug 2010
Approximately $2.2 billion of rated debt securities affected
New York, August 13, 2010 -- Moody's Investors Service affirmed Harland Clarke Holdings Corp.'s
("Harland Clarke") B2 Corporate Family Rating (CFR), B2 Probability
of Default rating, B1 senior secured ratings and Caa1 ratings of
its senior unsecured notes. Harland Clarke's B2 CFR continues to
reflect the ongoing secular pressures on its revenue base and operating
margins, and event risk associated with its controlling shareholder,
M&F Worldwide. The rating outlook remains stable.
Details of the ratings action are as follows:
Senior secured revolving credit facility, due 2013 --
B1, LGD3, 41%
Senior secured term loan, due 2014 -- B1, LGD3,
Floating rate notes due 2015 -- Caa1, LGD6,
9.5% Senior notes due 2015 -- Caa1,
Corporate family rating -- B2
Probability of default rating -- B2
The rating outlook is stable.
Harland Clarke's B2 Corporate Family rating ("CFR") is supported
by the company's good cash flow generation from its portfolio of mature
businesses. At the same time, the rating is tempered by heightened
substitution risk in the check business, high leverage as well as
event risk related to industry consolidation, acquisitions and distributions
Harland Clarke successfully implemented $113 million of cost synergies
(combining printing facilities and call centers as well as eliminating
overlapping corporate functions) related to the Harland acquisition,
which reduced debt-to-EBITDA considerably to approximately
4.5x (LTM 6/30/10 incorporating Moody's standard adjustments) from
the 6.9x pro forma level at the close of the acquisition in 2007.
Nevertheless, the rating reflects Moody's ongoing concern that the
decline in physical consumer check demand will continue and ultimately
accelerate erosion in these businesses. Management acknowledges
that check volumes are decreasing and segment revenues through June 2010
confirm the consistent decline in checking and related products.
According to Moody's estimates, the volume of checks written contracted
about 10% in 1H 2009 due to the turmoil in the financial services
industry and we expect continued declines above 6-7% through
the remainder of 2010 and 2011.
Harland Clarke has a good track record of mitigating volume declines with
customer-focused products and services that increase average revenue
per order, but we remain concerned these efforts will not be sufficient
to prevent accelerating revenue erosion. Additionally, the
company continues to make acquisitions offsetting volume declines for
check related products. Recent transactions include SubscriberMail
and separately Protocol IMS in December 2009 for a combined $12.9
million as well as Spectrum K12 School Solutions, Inc. ("Spectrum
K12") for $30 million in July 2010.
Please see the credit opinion posted to www.moodys.com for
additional information on Harland Clarke's ratings.
The last rating action on Harland Clarke occurred on August 17,
2009, when Moody's affirmed ratings for the CFR, PDR and individual
Harland Clarke's ratings were assigned by evaluating factors we believe
are relevant to the credit profile of the issuer, such as i) the
business risk and the competitive position of the company versus others
within its industry, ii) the capital structure and financial risk
of the company over the near-to-intermediate term,
iii) the projected financial and operating performance of the company
over the near-to-intermediate term, and iv) management's
track record and tolerance of risk. These attributes were compared
against other issuers both within and outside of Harland Clarke's core
industry and Harland Clarke's ratings are believed to be comparable to
those of other issuers of similar credit risk.
Headquartered in Decatur, GA, Harland Clarke is a provider
of (1) check and check-related products and services to financial
institutions, businesses and consumers, (2) software and related
services to financial institutions, and (3) data collection,
testing products, scanning equipment and tracking services through
its Scantron division. For the LTM period ended June 30,
2010, the company generated $1.7 billion in revenues.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Harland Clarke Holdings Corp.'s ratings
250 Greenwich Street
New York, NY 10007
No Related Data.
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