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Global Credit Research - 16 Jun 2010
$300 million of new notes rated
Toronto, June 16, 2010 -- Moody's Investors Service rated R.R. Donnelley &
Sons Company's (RR Donnelley) new $300 million 10-year
senior unsecured notes Baa3. As the notes issue is neutral to RR
Donnelley's credit profile, the new debt is rated at the same
Baa3 level as the company's existing senior unsecured debt.
In addition, the company's prevailing stable ratings outlook
is also unchanged.
The note issue can be viewed as either refinancing a portion of the recent
May 15th $326 million debt maturity or pre-funding a portion
of the pending $481 million acquisition of Bowne & Co.,
Inc., (Bowne). In either case, the transaction
is neutral to RR Donnelley's credit profile, allowing the
senior unsecured notes to be rated at the same Baa3 rating level as the
company's existing senior unsecured notes.
Issuer: R.R. Donnelley & Sons Company
..Issuer: R.R. Donnelley & Sons
....Senior Unsecured Regular Bond/Debenture,
We view the company as having a solid operating platform featuring significant
product diversity and aggregate scale, and a reasonable cost position.
As an industry leader with good access to the capital markets and a generally
solid liquidity position, we do not anticipate abrupt changes in
the company's risk profile. However, we do view the company's
business with a degree of caution given the poor supply/demand balance
that significantly suppresses commercial printing margins. We estimate
the annual volume of more than $100 billion North American commercial
printing market is declining at a long term rate of +/- 3%
and are concerned that a significant proportion of recessionary declines,
which greatly exceed the long term average, may not fully recover.
Visibility of forward activity levels is poor and causes the timing and
magnitude of a recovery to be uncertain. As well, tepid growth
prospects suggest that cost-cutting is the principal means for
management to enhance cash flow. In turn, given the natural
limitations cost reduction, management is incented to augment cost-cutting
opportunities through acquisitions. In turn again, in order
to satisfy shareholder expectations, there is an incentive to use
debt financing as a facilitator. To date, RR Donnelley has
done a reasonable job in balancing the competing interests of shareholders
and debt holders, and the Baa3 rating is based on the assumption
this will continue. In particular, should the business experience
a permanent set-back, we expect management will adjust the
capital structure or shareholder returns to maintain an appropriate relationship
between debt and sustainable cash flow. We also expect management
to support the Baa3 rating by maintaining solid access to liquidity.
As existing liquidity arrangements mature in January of 2012, they
are in need of refreshing.
For additional commentary, please refer to the associated Credit
Opinion (available on Moodys.com shortly after the date of this
Moody's most recent rating action concerning RR Donnelley was taken
on August 19, 2009 at which time a prior $350 million senior
unsecured notes issue was rated Baa3.
RR Donnelley's ratings were assigned by evaluating factors Moody's
believes 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 RR Donnelley's core industries
and RR Donnelley's ratings are believed to be comparable to those
of other issuers of similar credit risk. Other methodologies and
factors that may have been considered in the process of rating these issuers
can also be found in the Rating Methodologies sub-directory on
Headquartered in Chicago, Illinois, R.R. Donnelley
& Sons Company is North America's largest commercial printing company.
RR Donnelley provides print and related services that include direct mail,
financial printing, print fulfillment, labels, forms,
logistics, call centers, transactional print-and-mail,
print management, online services, digital photography,
color services, and content and database management. Key
customers compete in the publishing, healthcare, advertising,
retail, technology and financial services industries.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
Donald S. Carter, CFA
Corporate Finance Group
Moody's Canada Inc.
Moody's rates RR Donnelley's new senior unsecured notes Baa3
No Related Data.
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