CHATHAM, N.J., Feb. 12, 2020 /PRNewswire/ -- Chatham Asset
Management, LLC ("Chatham"), a
private investment firm which manages funds that beneficially own
12.9% of the outstanding common stock and which is the largest
bondholder of R.R. Donnelley & Sons Company ("RRD" or the
"Company") (NYSE: RRD), today sent a letter to RRD Chairman
John C. Pope, RRD President and
Chief Executive Officer Daniel L.
Knotts and the Company's Board of Directors (the "Board")
expressing Chatham's appreciation
of the Board's willingness to engage in productive dialogue and
outlining an initial course of action to enhance the value of the
Company for all stakeholders.
The full text of the letter follows:
February 12, 2020
Mr. John C. Pope
Chair, Board of Directors
Mr. Daniel L. Knotts
President and Chief Executive Officer
R.R. Donnelley & Sons Company
35 West Wacker Drive
Chicago, IL 60601
Re: R.R. Donnelley & Sons
Company (the "Company") Corporate Strategies
Dear Messrs. Pope and Knotts:
We are encouraged by your recent expression of willingness to
engage in a productive dialogue with Chatham. To that end, we outline briefly here
some general observations about the Company and its corporate
strategies.
You may recognize certain of these suggestions as similar to
ideas we previously communicated, prior to your precipitous
adoption of the Stockholder Rights Plan last August. Though we have
not been in more recent communication with you than that, we are no
longer content to stand mute, while the Company engages in
value-destructive policies to the detriment of all stakeholders. We
are heartened to hear that you agree our perspectives should be
able to be shared without fear of penalty or reprisal.
First and foremost, we have observed that the Company faces
substantial amounts of debt with maturities coming due within the
next two years. Investors (whether equity or debt) are
understandably skittish about the Company's financial stability.
Even more upsetting is the lack of a publicly announced plan to
deal with these looming near-term maturities. We therefore strongly
believe that the Company should articulate to investors a coherent
and comprehensive financing plan to optimize its capital structure
relative to its competitive peer set. Such a plan should
demonstrate appropriate use of leverage and liquidity, as well as
timely management of debt maturities. Permanent debt reduction and
the full refinancing of short-dated maturities should be the
priorities, enhancing the Company's financial stability and
lowering its overall interest burden. As part of any such plan,
specific goals and metrics should be articulated to investors, so
that management can be held accountable based on the Company's
performance against its peers.
Where has the Company presented such a financing plan previously
to its investors? Does one even exist? We and other investors are
waiting for the Company to articulate a comprehensive and coherent
financing plan.
Even without such a comprehensive financing plan, certain simple
steps could still be taken to improve the Company's capital
position immediately, which appear to have been overlooked.
For example, we think the Company should explore repricing and
expanding its existing term loan credit facility. We note that the
Company's existing term loans currently trade at a substantial
premium to par, due principally to the unreasonably high interest
rate the Company is paying on such loans.1 We
think that the Company could easily reprice its term loans to
reduce interest by as much as 100 basis
points,2 and that the Company has more than
enough first-lien capacity to increase such term loan borrowings by
as much as $150 million.
We also are resolute that the Company should use cash flow from
operations, in addition to any new money raised from such add-on
financings, to repay near-term bond maturities in a similar manner
as it has done in the past, by means of a so-called "waterfall"
tender. Such a transaction would reduce the constant specter that
near-term credit maturities continually require refinancing or
repayment, in a series of disorganized and ill-planned
transactions, upon terms that are substantially more onerous and
expensive to the Company than those we have consistently observed
among its peers.
We have not seen any action in recent months to implement
similar value-enhancing corporate and financing strategies.
Meanwhile, the erosion of value has continued, as evidenced by poor
credit ratings and the continuing decline in the Company's stock
price.
We hope that the Board and management will give these ideas due
consideration, and we look forward to engaging in further
productive dialogue with you and other members of management. We
believe that any course of action similar to those articulated
above would substantially enhance the value of the Company for all
stakeholders.
Sincerely,
/s/
Anthony Melchiorre
Managing Member
Chatham Asset Management
cc: Terry D. Peterson, Executive Vice President and
Chief Financial Officer
Brian D. Feeney, Senior Vice
President, Finance
1
|
Interest is currently
paid on the Term Loan B credit facility at LIBOR plus
5.00%.
|
2
|
A 100 basis-point
reduction is consistent with numerous similar-rated bank loan
repricing transactions we have recently observed in the
marketplace. We note that the Company's margin is more than 100
basis points higher than the weighted-average margin, across a
sample of almost $200 billion of similar-rated bank loans which we
have recently reviewed.
|
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SOURCE Chatham Asset Management, LLC