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29 Mar 2010
Approximately $743 Million of Debt Affected
New York, March 29, 2010 -- Moody's Investors Service upgraded the rating for Deluxe Corporation's
("Deluxe") $200 million of 7-3/8% senior
unsecured notes due 2015 to Ba1 from Ba2 due to the enhanced support structure
and correspondingly improved Loss Given Default assumption, as noteholders
now benefit from a pari-passu guaranty of Deluxe's material
subsidiaries that went into effect following the company's execution
of a new $200 million senior secured revolving credit facility
that is also guaranteed by those subsidiaries. At the same time,
Moody's downgraded the ratings for Deluxe's $280 million
of 5% senior unsecured notes due 2012 and $264 million of
5-1/8% senior unsecured notes due 2014 to Ba3 from Ba2 based
on worsening Loss Given Default expectations, as these notes now
rank at the bottom of the recovery waterfall in the company's capital
structure as they do not enjoy the benefit of security interests or subsidiary
..Issuer: Deluxe Corporation
....7-3/8% senior unsecured
notes, due 2015, Upgraded to Ba1, LGD2, 24%
from Ba2, LGD4, 54%
..Issuer: Deluxe Corporation
....5% senior unsecured notes,
due 2012, Downgraded to Ba3, LGD5, 73% from Ba2,
....5-1/8% senior unsecured
notes, due 2014, Downgraded to Ba3, LGD5, 73%
from Ba2, LGD4, 54%
Deluxe's Ba2 Corporate Family Rating (CFR) continues to reflect ongoing
pressure on the company's revenue base (consisting largely of printed
products) and operating margins, and execution risks associated
with its strategy to expand the small business services (SBS) segment.
We believe the continued revenue pressure elevates event risk and necessitates
that Deluxe maintain a more conservative leverage profile than comparably-rated
issuers. Notwithstanding these longer-term risks,
we believe savings from the implemented $325 million cost reduction
programs helped mitigate some of the downward earnings pressure from declining
check usage and pricing pressure, and the effect of economic weakness
on demand from small businesses. We believe that Deluxe will continue
to maintain a good liquidity profile, as demonstrated by the revolving
credit facility extension. In addition, we anticipate the
company will sustain debt-to-EBITDA leverage (incorporating
Moody's standard adjustments) below 3.5x and that through debt
reduction Deluxe will have the capacity to absorb a moderate earnings
decline within that leverage level.
The ratings for the specific debt instruments reflect both the overall
probability of default for Deluxe, for which Moody's maintains a
Probability of Default Rating of Ba2, and an average family loss
given default assessment of 50%. Moody's notes that
the individual debt instrument ratings are subject to potential near-term
variability, especially if they are in close proximity to the expected
loss assumptions underlying the rating breakpoints for high-yield
corporate issuers subject to the Loss Given Default Methodology.
In rating the company's debt obligations, Moody's has taken
a forward look with respect to the composition of the company's debt instruments.
Specifically Deluxe's senior unsecured notes that are due between
2012 and 2014 were issued when the company was rated investment-grade.
It is highly probable that these notes will be refinanced on terms and
conditions more in line with current market speculative-grade deals
and thereby be structurally and contractually on par with the 2015 notes.
Consequently, in the future we expect the ratings of the company's
debt to likely converge towards the CFR, reflecting the probability
that maturing debt is refinanced on market terms and/or is repaid in cash.
Moody's last rating action for Deluxe was on August 17, 2009
when ratings were affirmed, including the Ba2 CFR.
Deluxe'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 competitive position of the company versus others within its industry,
ii) the capital structure and financial risk of the company, iii)
the projected performance of the company over the near to intermediate
term, and iv) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside
of Deluxe's core industry and Deluxe's ratings are believed to be comparable
to those of other issuers of similar credit risk.
Deluxe Corporation, headquartered in St. Paul, MN,
uses direct marketing, distributors and a North American sales force
to provide a wide range of customized products and services: personalized
printed items (checks, stationery, greeting cards, labels,
and shipping/packaging supplies), promotional products and merchandising
materials, website hosting and web services, fraud prevention
services, and customer retention programs.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's modifies Deluxe ratings following change in guarantee support structure
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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