Moody's Raises Outlook on RR Donnelley (RRD) to Stable; Sees Debt-to-EBITDA Leverage Declining Through mid-2016

Moody's Investors Service (Moody's) changed RR Donnelley & Sons Company's (NYSE: RRD) ratings outlook to stable from negative and affirmed the company's Ba2 corporate family rating (CFR) and Ba2-PD probability of default rating (PDR). As part of the same rating action, Moody's affirmed ratings on RRD's outstanding debt instruments and liquidity arrangements (see ratings list below).

The outlook change is prompted by Moody's expectation that RRD's leverage of debt-to-EBITDA will decline below 3x by mid-2016. While Moody's anticipates continued acquisition activity, RRD is expected to generally finance future acquisitions using approximately 50% cash and 50% equity.

The following summarizes today's rating actions and RR Donnelley's ratings:

..Issuer: R.R. Donnelley & Sons Company

Outlook, Change to Stable from Negative

Corporate Family Rating, affirmed at Ba2

Probability of Default Rating, affirmed at Ba2-PD

Speculative Grade Liquidity Rating, affirmed at SGL-2

...Senior Secured Bank Credit Facility, affirmed at Baa2 (LGD1)

Senior Unsecured Regular Bond/Debenture, affirmed at Ba3 (LGD4)

Senior Unsecured Shelf, affirmed at (P)Ba3

RATING RATIONALE

RR Donnelley's Ba2 corporate family rating is primarily driven by its size and leadership position on North American commercial printing and our expectation that leverage will be reduced below 3x in 2016 after recent acquisitions are absorbed. We expect Donnelley to continue to make acquisitions to shift the company's focus away from printing, which is in structural decline, and to do so with some of its free cash flow, while the rest is used to reduce debt, albeit slowly.

Rating Outlook

The outlook is stable because Moody's expects RRD's leverage of debt-to-EBITDA to decline below 3.0x by mid-2016 (Moody's adjusted).

What Could Change the Rating -- Up

The rating could be upgraded if Moody's expects:

• Sustained Debt-to-EBITDA leverage below 2.5x (3.8x at 31Mar15)

• Sustained free cash flow-to-debt above 10% (5.3% at 31Mar15)

• Stronger industry fundamentals

• Solid liquidity arrangements

What Could Change the Rating -- Down

The rating could be downgraded if Moody's expects:

• Interruption of de-levering progress towards the bottom end of management's leverage of Debt-to-EBITDA guidance range of 2.25x to 2.75x (equates to approximately 2.75x to 3.25x on a Moody's-adjusted basis; 3.8x at 31Mar15)

• Sustained free cash flow-to-debt below 5% (5.3% at 31Mar15)

• Further deterioration in industry fundamentals

• Weaker liquidity arrangements

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