NEW YORK--()--Fitch Ratings has assigned a 'BBB-' rating to Pitney Bowes Inc.'s (Pitney Bowes) proposed offering of retail notes due 2043. Note proceeds will be primarily used to fund the tender offers described below. Fitch views the transaction as a slight credit positive as it will improve Pitney Bowe's near-term liquidity by pushing out upcoming maturities. The retail notes will be unsecured obligations and pari passu with existing debt at Pitney Bowes.
In conjunction with proposed offering, the company also announced cash tender offers for its 4.875% Notes due 2014, 5.000% Notes due 2015, and 4.750% Notes due 2016. The maximum tender that can be accepted will be $160 million of the 2014 Notes, $100 million of the 2015 Notes, and $50 million of the 2016 Notes.
The tender offers partially address the material annual maturities Pitney Bowes faces over the next several years. As of Dec. 31, 2012, Pitney Bowes' total debt was $4.3 billion, consisting of:
i) $3.7 billion of senior unsecured debt, consisting of 10 notes maturing between 2013 - 2022 and one maturing in 2037 ($500 million);
ii) $230 million in term loans due in 2015/2016; and
iii) $300 million of variable-term voting preferred stock in the company's subsidiary, PBIH. Under Fitch's hybrid security criteria, Fitch assigns 0% equity credit given the less than five-year maturity (based on the October 2016 call date).
Pitney Bowes' liquidity position at Dec. 31, 2012 was solid, consisting of: i) $913 million of cash; and ii) an undrawn $1 billion revolving credit facility (RCF) maturing in April 2016, which backstops the company's $1 billion commercial paper (CP) program. Liquidity is further supported by the company's annual free cash flow generation.
Fitch recognizes that Pitney Bowes can address its maturities organically with its pre-dividend FCF generation. The company appointed its new President and CEO in December of 2012 and has indicated that they will provide more information related to its capital deployment at its investor meeting in May 2013.
Fitch calculates total consolidated gross leverage as of Dec. 31, 2012 at 4.0 times (x) an improvement from 2011's 4.2x. This excludes $340 million in debt recently issued to prefund the June 2013 $375 million senior unsecured note maturity. The company reduced absolute debt by $550 million in 2012, which improved core leverage by a half a turn.
KEY RATING DRIVERS
The ratings are supported by: the significant and entrenched market position in the core U.S. Mailing business, characterized by approximately 80% share of the postage meter market and limited competitive pressures; the necessity of mail equipment and services to conduct business across all industries; and the diversity of the company's customer base, from both an industry and size perspective.
Ratings concerns include: secular and cyclical pressures inherent in the business; top-line declines; and a potentially more aggressive financial policy stemming from secular challenges and underperforming equity.
In addition to the comments above, ratings may be stabilized if over the next one to two years Fitch has higher conviction that a successful roll-out of the digital and customer communications initiatives, in combination with growth in its enterprise services businesses, will offset declines in its physical business.
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
--Lack of traction in the company's digital initiatives and other growth businesses amid ongoing declines in the traditional physical business. Also, sustained revenue declines in the high single digits would pressure the ratings;
--A sustained increase in total leverage, whether the result of incremental debt or lower EBITDA;
--Indications of a more aggressive financial policy.
Positive: The current Outlook is Negative. As a result, Fitch's sensitivities do not currently anticipate a rating upgrade.
Fitch rates Pitney Bowes as follows:
--Senior unsecured revolving credit facility (RCF) 'BBB-';
--Senior unsecured term loan 'BBB-';
--Senior unsecured notes 'BBB-';
--Short-term IDR 'F3';
--Commercial paper (CP) 'F3'.
The Outlook is Negative.
Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
Applicable Criteria & Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' (Dec. 13, 2012);
--'Fitch Downgrades Pitney Bowes to 'BBB-'; Outlook Remains Negative' (Feb. 4, 2013).
Applicable Criteria and Related Research
Corporate Rating Methodology
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis