Fitch Affirms R.R. Donnelley’s BB+ Default Rating, Classifies Outlook as Stable

Leverage:

As of March 31, 2012, the company had total debt of $3.8 billion.

The company calculates leverage at 3.0x as of March 31, 2012, excluding restructuring cost. Given the secular issues facing RRD, Fitch will no longer adjust EBITDA for restructuring charges, resulting in an unadjusted gross leverage ratio of 3.2x. Fitch believes restructuring charges will be an ongoing expense. While current leverage is high for the rating, Fitch expects leverage to be below 3.0x before year end.

Covenants:

Fitch notes that liens are not permitted under the existing bonds, unless a pari passu lien is granted to the notes. There is also a general lien basket that limits liens (and sale-leaseback transactions) to 15% of net tangible assets (there is a 10% limit for the notes maturing in 2021, 2029, and 2031).

While the company's credit facility contains a 4.0x maximum leverage covenant, current bondholders do not benefit from any material unsecured debt or unsecured subsidiary guarantee restrictive covenants. Fitch notes that in the event that the credit facility became guaranteed by the operating subsidiaries of RRD (noting that the revolver does not expire until Dec. 17, 2013), Fitch would expect to notch down the unsecured notes, reflecting this subordination.

Fitch has affirmed R.R. Donnelley's ratings as follows:

• IDR at BB+;
• Senior unsecured revolving credit facility at BB+;
• Senior unsecured notes and debentures at BB+.

Fitch has also withdrawn the following ratings:

• Short-term IDR, B;
• Commercial paper, B.

Source: Fitch.