S&P Downgrades RR Donnelley (RRD) to 'B+'; Outlook Stable

S&P Global Ratings said today that it lowered its corporate credit rating on R.R. Donnelley & Sons Co. (Nasdaq: RRD) to 'B+' from 'BB-' and removed the ratings on the company from CreditWatch, where it had placed them with negative implications on Aug. 4, 2015. The rating outlook is stable.

At the same time, we lowered our issue-level rating on the company's senior unsecured debt to 'B+' from 'BB-'. The '4' recovery rating is unchanged, indicating our expectation for average recovery (30%-50%; lower half of the range) of principal in the event of a payment default.

We also assigned our 'BB' issue-level rating and '1' recovery rating to the company's proposed $800 million senior secured revolving credit facility due 2021. The '1' recovery rating indicates our expectation for very high (90%-100%) recovery of principal in the event of a payment default.

"The 'B+' corporate credit rating reflects the structural decline and intense price competition in the print industry, our uncertainty regarding R.R. Donnelley's long-term growth prospects, the company's significant scale and good product and service diversity, and our adjusted leverage forecast of 4.5x in 2017," said S&P Global Ratings' credit analyst Minesh Patel.

The stable rating outlook reflects our expectation R.R. Donnelley will repay more than $1.5 billion of debt over the next 12-18 months. We also expect adjusted leverage in the low- to mid-4x range in 2017.

We could lower the corporate credit rating if the company's revenue or profitability declines such that we expect leverage to rise to the mid- to high-4x range. We could also consider a downgrade if the company initiates any shareholder-rewarding programs or pursues large acquisition that changes our view of its financial policy.

Although an upgrade is unlikely over the next 12 months, we could raise the rating if we are convinced that adjusted leverage will decline to below 3.75x, revenue will grow in the low-single-digit percentage area, and if we believe the company will maintain adjusted margins above 9%.

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