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S&P Downgrades RR Donnelley Outlook

December 2, 2011
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CHICAGO—Standard & Poor's (S&P) Ratings Services has revised its outlook on RR Donnelley (RRD) to negative from stable. The outlook revision reflects S&P's expectation of weak economic conditions, negative trends in print media and the risk of intensifying industry pricing pressure.

Although leverage is currently high for the rating, the "BB+" long-term corporate credit rating on RRD reflects the company's cash flow generation and the potential that the company could reduce leverage to the mid-3x area, according to S&P. It regards the business risk profile as satisfactory, based on RRD's market position and efficiencies associated with its critical mass.

However, S&P feels Donnelley faces declines in several of its products and pricing pressure because of industry overcapacity. The Ratings Service believes the trends will likely cause RRD's organic revenue to grow at rates below the GDP growth rate, which could result in near-term revenue declines.

S&P believes RRD's revenue will grow in the low- to mid-single digits in the fourth quarter, principally through contributions from acquisitions. In 2012, revenue could remain relatively flat or decline at a low-single-digit rate. However, intensifying secular pressure on print media and/or a recession could cause revenue to decline at a faster rate than the base case scenario. Leverage is currently high because the company recently deployed debt to make a sizable acquisition (Bowne & Co.) and to repurchase shares.
 

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