Merrill Corp. Refinances; Credit Ratings Likely to Be Upgraded

Merrill Corp. Refinances; Credit Ratings Likely to Be Upgraded

Merrill Corporation is expected to essentially replace its existing $626 million of debt with new loans that have later deadlines, and both Moody’s and S&P expect to upgrade the company’s credit ratings if the refinancing is executed as planned.

St. Paul-based Merrill Corporation, one of Minnesota’s larger private companies, has reached a refinancing deal that will allow it to repay hundreds of millions of dollars in debt and thus improve liquidity—and two major credit rating agencies are poised to upgrade the company’s ratings in response.

Merrill faces several looming deadlines for its outstanding debt, and Moody’s Investors Service currently categorizes the company as being in “limited default.” That’s because Merrill missed a July deadline and received a loan extension through December.

But Moody’s wrote in a Monday report that the company has struck a refinancing deal that is expected to “address all upcoming maturities.” The deal, which Merrill entered into this month, will allow it to repay $626 million of debt, which includes a $33 million revolving credit facility and a $374 million loan, both due in December, as well as a $220 million loan due in November 2013, according to Moody’s.

Merrill is essentially replacing existing debt with new debt: The refinancing would result in a $30 million revolving credit facility and a $455 million loan due in 2017, as well as a $150 million loan due in 2018, the ratings agency said.

In response to the proposed refinancing, Moody’s placed Merrill’s ratings “on review for upgrade.” It’s considering upgrading the company’s corporate credit rating two notches to “Caa1,” with a “stable outlook.” “Caa1” is still considered “not prime,” or “speculative-grade.” “Aaa” is Moody’s top rating.

Standard & Poor’s Ratings Services, meanwhile, said it placed Merrill on “credit watch with positive implications”—meaning it is poised to upgrade the company’s “CCC-” corporate credit rating, which indicates that a company is “vulnerable and dependent on favorable business, financial, and economic conditions to meet financial commitments.”

Merrill provides financial printing and publishing services and outsourced solutions for business communication and information management. It employs more than 5,000 workers and operates roughly 40 domestic and 22 international locations, according to its website.

As a private company, Merrill isn’t held to the same financial disclosure requirements as public companies, but both Moody’s and S&P said that the company has recently improved its operating performance. Based on preliminary financial statements, Merrill had about $801 million in revenue for the fiscal year that ended July 31, according to Moody’s. By contrast, the company generated about $788 million of revenue for the 12 months that ended on October 31, 2011, Moody’s said. And the company’s earnings increased roughly 20 percent in the most recent quarter due in part to cost cutting and lower marketing costs, according to S&P.