Pitney Bowes Inc. -- Moody's downgrades Pitney Bowes' CFR to B1; outlook stable

Rating Action: Moody's downgrades Pitney Bowes' CFR to B1; outlook stableGlobal Credit Research - 16 Feb 2022New York, February 16, 2022 -- Moody's Investors Service ("Moody's") downgraded Pitney Bowes Inc.'s (Pitney Bowes) Corporate Family Rating (CFR) to B1 from Ba3 and the Probability of Default Rating (PDR) to B1-PD from Ba3-PD. As part of the rating actions, Moody's also downgraded the following instrument ratings: the senior secured revolver and term loans to Ba2 from Ba1, the guaranteed senior unsecured notes to B2 from B1, and the unguaranteed senior unsecured notes to B3 from B1. The Speculative Grade Liquidity (SGL) rating of SGL-2 is unchanged, and the outlook was revised to stable from negative.The downgrades reflect Moody's view that more time and investment will be needed for Pitney Bowes to bring shipping and ecommerce operations to profitability following weak results for the seasonally important 4Q21. As a result, Moody's expects the Global Ecommerce segment will report negative EBIT through most of 2022 with adjusted leverage remaining elevated.Rating actions are summarized below:Downgrades:..Issuer: Pitney Bowes Inc..... Corporate Family Rating, Downgraded to B1 from Ba3.... Probability of Default Rating, Downgraded to B1-PD from Ba3-PD....Senior Unsecured Shelf, Downgraded to (P)B2 from (P)B1....Senior Secured Revolving Credit Facility, Downgraded to Ba2 (LGD2) from Ba1 (LGD2)....Senior Secured Term Loan A, Downgraded to Ba2 (LGD2) from Ba1 (LGD2)....Senior Secured Term Loan B, Downgraded to Ba2 (LGD2) from Ba1 (LGD2)....Gtd Senior Unsecured Regular Bond/Debenture, Downgraded to B2 (LGD4) from B1 (LGD5)....Senior Unsecured Regular Bond/Debenture, Downgraded to B3 (LGD5) from B1 (LGD5)Outlook Actions:..Issuer: Pitney Bowes Inc.....Outlook, Changed To Stable From NegativeRATINGS RATIONALEThe downgrade of Pitney Bowes' CFR to B1 is driven by Moody's expectation of further delays before the company produces positive and sustainable EBIT for the higher growth shipping and ecommerce operations. Accordingly, Moody's believes that debt to EBITDA will remain elevated above 4.5x (Moody's adjusted) for most of 2022. More time and financial investment by Pitney Bowes will be required to achieve operating efficiencies for shipping and ecommerce businesses and deliver the company's targeted profit margins for Global Ecommerce.Pitney Bowes has invested significantly over the last few years to build out shipping and ecommerce capabilities serving primarily middle market companies and indicated that its Global Ecommerce network is largely complete with the ability to handle over 200 million packages annually. In 4Q21, however, U.S. parcel volumes were approximately 20% below what the company had anticipated.Weak results for the Global Ecommerce segment in 4Q21 reversed positive reported segment EBITDA in 4Q20, and more than doubled reported segment EBIT losses to ($41 million) from ($15 million) in 4Q20. Underperformance for Global Ecommerce more than offset improved results for remaining segments for the year. Presort Services reported 10% growth in segment revenue and 22% growth in EBITDA in 2021, while SendTech performed better than prior years with a revenue decline of (1%) compared to (9%) and (7%) reductions in 2019 and 2020, respectively. Given underperformance during the seasonally important 4QQ21, Moody's expects cash flow and other credit metrics (Moody's adjusted) will remain under pressure for most of 2022. Although Moody's expects adjusted EBITDA margins will improve by 1% - 2% over the next year, free cash flow growth will be muted by ongoing investments, albeit at reduced levels, in shipping and ecommerce to achieve needed efficiencies.Pitney Bowes' B1 CFR is supported by the company's leading market presence, long standing customer relationships under multi-year contracts in the highly regulated mail metering market, and growth opportunities in the shipping and ecommerce businesses. The transition to higher growth shipping could prove beneficial over the long term given the growth potential for shipping-related offerings, in contrast to the secular decline in mail volumes. Profit margins, however, will continue to suffer from investments to optimize shipping and ecommerce capabilities, and there are execution risks related to growing market share among more diversified and deeper-pocketed shipping providers. Pitney Bowes will need to maintain good financial flexibility to support investments to realize operating efficiencies and provide a cash cushion to address unexpected challenges in a competitive environment.A good portion of Pitney Bowes' cash flow is exposed to declining trends for traditional mail delivery in the U.S. and abroad. The ongoing substitution of electronic mail for physical delivery represents a social risk. Pitney Bowes has partially mitigated this risk by adding shipping capabilities to its equipment and service offerings resulting in overall topline growth for the past two years. Pitney Bowes has generally adhered to its financial policies while investing in the transformation of its business model. Debt balances have declined over each of the past three years and quarterly dividends were cut by 73% since 1Q19. Pitney Bowes is publicly traded with its two largest shareholders, Vanguard and Blackrock, owning 9.5% - 11% of common shares, respectively, as of the end of December 2021, followed by other investment management companies holding less than 4%. Good governance is supported by a board of directors with nine of the company's ten board seats being held by independent directors.The SGL-2 rating reflects good liquidity supported by available cash of more than $500 million as of year-end December 2021 (excludes estimated amounts held by The Pitney Bowes Bank, Inc.) and an undrawn $500 million revolver expiring in 2026. The nearest significant debt maturity is in two years when $243 million of notes come due in March 2024. Moody's expects ongoing investments to optimize operations and expand third party equipment financing will limit free cash flow generation.The Ba2 instruments rating on the senior secured credit facilities is two notches above the CFR reflecting their position ahead of the unsecured notes and incorporating the B1-PD Probability of Default Rating, Moody's expectation for an average recovery in a distressed scenario, and expectations for redemption of near term note maturities. The B2 rating on the guaranteed senior unsecured notes is one notch below the CFR reflecting their position behind the secured debt, but ahead of the unguaranteed unsecured notes which are rated B3.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook for Pitney Bowes reflects good demand for shipping and ecommerce offerings by middle market customers which will continue to support overall topline growth with volume and price increases. After several years of significant investment in expansion, Pitney Bowes indicates the capacity of its global ecommerce network is well beyond current volumes being handled which allows for reduced capital spending in 2022 versus 2021 and future investments being focused on realizing efficiencies. Although leverage is elevated and Global Ecommerce will not be meaningfully profitable over the next year, Moody's expects total revenues will grow in the low to mid-single digit percentage range over the next year with gradually improving overall profit margins. Moody's believes that Pitney Bowes will continue to adhere to disciplined financial policies and remain committed to reducing adjusted leverage as well as maintaining strong credit protection measures for its equipment financing operations.Ratings could be upgraded if Pitney Bowes demonstrates consistent revenue and EBITDA growth with operating margins (Moody's adjusted) in the low-teen percentage range. Adjusted debt/EBITDA would need to be in the mid 3x range with adjusted free cash flow to debt approaching 5%. Moody's would also need to be comfortable with the execution and financial policies related to expanding third party equipment financing. Ratings could be downgraded if Moody's expects consolidated revenues will decline reflecting greater than expected weakness in mature mailing operations or competitive pressures for shipping or ecommerce businesses. Ratings could also be downgraded if adjusted debt to EBITDA does not improve consistently in 2022 or if Moody's expects adjusted leverage will be sustained above 4.5x beyond 2023. There would be downward pressure on ratings if EBITDA margins or free cash flow deteriorate reflecting underperformance in core operations or with expanding third party equipment financing.Based in Stamford, CT, Pitney Bowes Inc. is a global provider of ecommerce fulfillment, shipping and returns, cross-border ecommerce, office mailing and shipping, presort services, as well as related services and financing. Moody's expects revenues will exceed $3.8 billion over the next year.The principal methodology used in these ratings was Diversified Technology published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130737. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Carl Salas VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Stephen Sohn Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​