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Rating Action:

Moody's lowers Pitney Bowes' long term ratings; sr. uns. to Baa2; outlook stable

Global Credit Research - 14 Nov 2012

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, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's lowers Pitney Bowes' long term ratings; sr. uns. to Baa2; outlook stable
No Related Data.

 

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