S&P Rates Vistaprint N.V. (VPRT) at 'BB-'

Standard & Poor's Ratings Services today assigned Venlo, Netherlands-based e-commerce provider of marketing products and services to global micro businesses Vistaprint N.V. (Nasdaq: VPRT) a 'BB-' corporate credit rating. The outlook is stable.

At the same time, we assigned the company's secured credit facility (consisting of a $690 million revolving credit facility and a $160 million term loan A) a 'BB' issue-level rating (one notch higher than the corporate credit rating), with a recovery rating of '2', indicating our expectation for substantial recovery (70% to 90%) in the event of a payment default.

In addition, we assigned the company's proposed $250 million senior unsecured notes a 'B' issue-level rating (two notches lower than the corporate credit rating), with a recovery rating of '6', indicating our expectation for negligible recovery (0% to 10%) in the event of a payment default.

The company will use the proceeds from the senior unsecured notes to repay debt under the revolving credit facility and borrowings under its uncommitted debt facility.

The 'BB-' rating we assigned to Vistaprint reflects the company's niche market position as an e-commerce provider of small order, customized paper and non-paper marketing materials, solid EBITDA margin and free operating cash flow generation, and our expectation that leverage will remain below 4x despite the company's intended acquisition strategy. We view the company's business risk profile as "weak" and the financial risk profile as "significant."

Vistaprint has a niche market position within the marketing products and services industry that competes against local printing shops and other online providers that focus on specialized offerings. The company provides online product ordering of customized printed products at extremely competitive price points, supported by technological innovation and investment to mass customize efficiently. We view its barriers to entry as moderately high, given the investment in production capacity and the marketing intensity. Nevertheless, we view the company's business risk profile as "weak" because it will need to sustain high marketing spending to drive revenue, maintain capacity utilization, and reinforce its brand equity. At the same time, it operates in a highly price-competitive, highly fragmented industry in which few, if any players exercise price leadership. Although the products the company offers (business cards, post cards, mobile phone cases, engraved pens) are not
subject to the same secular decline that other printing companies face with the decline in magazines, printed books, and catalogs, it is fundamentally a manufacturing business with ongoing production investment requirements. Roughly 50% of cash flow from operations for the company is spent on capital expenditures, of which roughly 40% is maintenance capital expenditures.

The company has undertaken a brand repositioning initiative that is intended to drive more repeat customers and higher average order values by transitioning to affordable and professional quality products from low price and basic quality. We believe this involves some risk to its pace of revenue growth, given the price competition inherent in the marketing products business, the difficulty of monetizing higher quality, and a shift in its target customer profile. We see the potential for minor revenue deceleration as the company continues this transition and attempts to maintain the one-time, price-sensitive customer, but we expect that revenue over the intermediate term will benefit if the company can increase its repeat customers and higher average order values.

Our assessment of the company's financial risk profile as "significant" is based on our expectation that the company's leverage will remain below 4x. As of June 30, 2014 (the end of the company's 2014 fiscal year), leverage was roughly 2.8x. We expect the company to continue acquiring companies at a similar pace to fiscal year 2014, when it spent $216 million on acquisitions, but we do not expect the company to allocate cash to dividend payments nor significant share repurchases. The company generates solid free operating cash flow (15% of debt, pro forma for the financing), and we expect that cash the company does not use for acquisitions will be used to repay debt.

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