SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

American technology company Pitney Bowes was downgraded further into junk by S&P due to higher leverage than previously forecasted. The company’s rating has been lowered by one notch to BB from BB+ with a stable outlook as its leverage has increased to 4x due to business losses. It reported a 16% drop in its adjusted EBITDA for 2020 mainly due to lower revenues from its mail metering business, Sending Technology (SendTech), which generates 80% of its revenues. The company also continues to suffer losses in the Global Ecommerce business due to higher than expected expenses even though the organic revenues grew by 40%. The secured debt of the company has been downgraded to BB+ and the unsecured debt has been downgraded to BB-. The ecommerce business has shown growth potential due to an increase in online shopping amid the pandemic. S&P believes that margins from SendTech will remain under pressure unless the profits from its ecommerce business make up for them. However, the rating agency noted that the cost structure of the ecommerce business has been high due to COVID related precautions and a return to profit will require deliberate efforts on part of the company. The firm has liquidity of $940mn, which is considered adequate in the near term. The rating agency forecasts 2021 free cash flows to be at their lowest level and expects these to grow slightly in 2022. According to S&P, “A prolonged path to profitability in Global Ecommerce in spite of the business’ improved scale will constrain Pitney Bowes’ ability to reduce leverage. We continue to believe Pitney Bowes’ path to sustainable EBITDA growth and improved financial metrics hinges on achieving meaningful profitability in Global Ecommerce.”

The bonds of the company have not reacted to the downgrade. Its 5.95% 2023s and 4.625% 2024s were up 0.5 and 0.6 to trade at 105.75 and 102.375 respectively.
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