S&P Affirms Cenveo (CVO) at 'B-'; Sees Business Profile as 'Weak'

Standard & Poor's Ratings Services today affirmed its 'B-' corporate credit rating on Stamford, Conn.-based printing company Cenveo Inc (NYSE: CVO). The outlook is stable.

At the same time, we assigned the $540 million first-lien notes a 'B' issue-level rating, with a recovery rating of '2', indicating our expectation for substantial recovery (70% to 90%) in the event of a payment default. We also assigned the $250 million second-lien notes a 'CCC' issue-level rating, with a recovery rating of '6', indicating our expectation for negligible recovery (0% to 10%) in the event of a payment default.

When the transaction closes, we will withdraw the rating on the company's existing term loan B and second-lien notes.

The company's proposed capital structure refinancing is essentially a debt-for-debt transaction that provides the company minimal interest expense savings, pushes out maturities, and removes maintenance covenants that previously governed the capital structure. The 'B-' corporate credit rating reflects our view that Cenveo is a highly leveraged company in an industry that is in a secular decline.

We view Cenveo's business risk profile as "weak." The company has developed a strong presence in the envelopes business (about 50% of revenue), which consists of direct mail, billing statements, and office and merchant products. We expect that volume and pricing pressure will continue to be a headwind for the company going forward as email marketing, online billing, and the general trend of digital over paper disrupts the traditional envelope business. The company achieved first-quarter organic revenue growth of just under 1%, partly because of volume strength in the direct mail business. We view Cenveo's management and governance as "fair."

Given that the company's leverage is in the 7x to 8x range, we view the company's financial risk profile as "highly leveraged."

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