Score Motion: Moody’s downgraded Quad’s senior secured financial institution credit score amenities to B1; affirms B1 CFRGlobal Credit score Analysis – 15 Aug 2022Roughly $1.Three billion of rated debtToronto, August 15, 2022 — Moody’s Traders Service (“Moody’s”) downgraded Quad/Graphics, Inc.’s (“Quad”) senior secured financial institution credit score amenities to B1 from Ba3. Moody’s has additionally affirmed the corporate’s B1 company household ranking (CFR) and B1-PD likelihood of default ranking. Quad’s speculative grade liquidity ranking stays unchanged at SGL-2. The outlook stays steady.”Immediately’s motion mirror shrinking loss absorption cushion supporting the senior secured debt following the reimbursement of the senior unsecured notes” mentioned Aziz Al Sammarai, Moody’s Analyst.Following the reimbursement of Quad’s excellent $209 million senior unsecured notes in Could 2022, the corporate has one class of debt, the B1 rated secured credit score amenities. Though, Quad’s credit score amenities profit from first-ranking safety declare on the corporate’s property, the loss absorption cushion offered by commerce payables and different obligations will not be enough to offer uplift. This drives Moody’s resolution to downgrade the ranking of the secured credit score amenities to B1 in keeping with the corporate’s CFR.Affirmations:..Issuer: Quad/Graphics, Inc….. Company Household Score, Affirmed B1…. Likelihood of Default Score, Affirmed B1-PDDowngrades:..Issuer: Quad/Graphics, Inc…..Senior Secured Financial institution Credit score Facility, Downgraded to B1 (LGD3) from Ba3 (LGD3)Outlook Actions:..Issuer: Quad/Graphics, Inc…..Outlook, Stays StableRATINGS RATIONALEQuad’s B1 CFR is constrained by: excessive enterprise threat stemming from publicity to the secular decline in business printing because of ongoing digital substitution; execution dangers as the corporate mitigates the secular pressures in business printing (retail inserts, magazines and catalogues) by reworking into an built-in advertising options supplier; and potential for elevated competitors within the promoting and advertising providers business. Nonetheless, the ranking advantages from: good market place and scale within the business print market; Moody’s expectation that debt/EBITDA will stay round 3x in 2022 and 2023; the corporate’s give attention to debt reimbursement from free money circulate and asset sale proceeds; continued price reductions, which partially mitigates inflation stress on EBITDA; and good liquidity, together with its means to generate constant free money circulate.Quad has good liquidity (SGL-2). Sources exceed $310 million with about $51 million of necessary debt reimbursement and time period mortgage amortization within the subsequent 4 quarters. At June 2022, liquidity is supported by $12 million of money and round $171 million of availability (utilizing probably the most restrictive debt covenant) below the corporate’s $432.5 million revolving credit score facility ($90 million expires in January 2024 and the rest in November 2026), and Moody’s anticipated free money circulate of about $130 million over the following 12 months. The corporate is topic to complete internet leverage (with step downs), senior leverage, and curiosity protection covenants; cushion ought to exceed 20% on the tightest covenant (complete internet leverage) by means of the following 4 quarters. Quad has restricted means to generate liquidity from asset gross sales.The steady outlook displays Moody’s expectation that Quad will be capable of deal with the January 2024 time period mortgage maturity on a well timed foundation whereas sustaining good liquidity, reasonable leverage, and proceed its transformation into an built-in advertising answer service supplier.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSA scores improve could possibly be thought-about if Quad is ready to generate sustainable optimistic natural EBITDA progress, efficiently remodel away from the secular decline in business printing, and maintain leverage under 3x.A scores downgrade could possibly be thought-about if the corporate will not be in a position to efficiently execute on its transformation away from business printing, resulting in ongoing income and EBITDA declines. The scores may develop into below stress if leverage will increase in the direction of 4x, or liquidity weakens.The principal methodology utilized in these scores was Media revealed in June 2021 and out there at https://scores.moodys.com/api/rmc-documents/72920. Alternatively, please see the Score Methodologies web page on https://scores.moodys.com for a duplicate of this system.Headquartered in Sussex, Wisconsin, Quad/Graphics, Inc. is a number one North American business printing firm. Income for the yr ended June 30, 2022 was $3.1 billion.REGULATORY DISCLOSURESFor additional specification of Moody’s key ranking assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure kind. 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