Fitch Downgrades RR Donnelley’s Rating; Outlook Remains Negative
RRD expects approximately $300 million in FCF (after dividends). Fitch believes this is achievable. Fitch expects 2012 full year revenues to be down in the low single digits, and EBITDA to remain unchanged relative to 2011 EBITDA of $1.2 billion. Fitch's base case model assumes that pressures in the Books and Directories segment accelerate and revenues in this business line declines in the mid-teens starting in 2013.
The ratings also reflect RRD's scale and diverse product offering as the largest commercial printer in the United States and worldwide. The U.S. commercial printing market size is approximately $140 billion. RRD is one of few well-capitalized competitors in this highly fragmented and sizable industry. The significant addressable market share that RRD could capture from rivals may provide some offset to secular pressures.
Fitch calculates RRD’s FCF (after dividends) for the last 12 months ended June 30, 2012 at $381 million. RRD’s pension was $1 billion underfunded at the end of 2011. The company intends to contribute $205 million to its various retirement funds, including its pension, in 2012. The 2012 contribution is reflected in Fitch’s FCF expectations. The contributions reflect the passing of the Moving Ahead for Progress in the 21st Century Act, which provided pension funding relief.
As of June 30, 2012, the company held $369 million in cash ($338 million located outside of the U.S.) and had $325 million drawn under its credit facility. RRD’s next bond maturity is its $258 million 4.95-percent notes due in April 2014, $300 million 5.5% notes due in May 2015 and its $350 million 8.6-percent notes due in August 2016.