Cimpress PLC Downgraded To 'B+' On Expected Pressures From COVID-19; Outlook Negative

  • The COVID-19 pandemic is severely limiting interpersonal interactions, which will hinder Cimpress PLC's sales of print marketing and consumer products to micro and small businesses.
  • We expect significant revenue and EBITDA declines for Cimpress, especially in its key North American and European markets. We expect adjusted net leverage will increase above our 4.5x downgrade threshold in the company's fiscal year ending June 30, 2020, and remain elevated through fiscal 2021.
  • We are lowering our issuer credit rating to 'B+' from 'BB-', our issue-level rating on the company's senior secured facility to 'BB-' from 'BB', and our issue-level rating on the company's unsecured notes to 'B-' from 'B'.
  • The negative outlook reflects the uncertainty surrounding the duration and severity of the COVID-19 impact on Cimpress, its customer base, and the risk that operating performance declines will extend through the rest of the calendar year, with leverage increasing above 5.25x for an extended period.
CHICAGO (S&P Global Ratings) March 25, 2020—S&P Global Ratings today took the rating actions listed above.
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak between June and August, and we are using this assumption in assessing the economic and credit implications. We believe measures to contain COVID-19 have pushed the global economy into recession and could cause a surge of defaults among nonfinancial corporate borrowers (see our macroeconomic and credit updates at www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
Leverage will likely remain elevated through 2020.  We believe COVID-19 has significantly limited the operations of Cimpress' key customer base of micro and small businesses. We expect this will diminish Cimpress' order volume, revenue, and EBITDA, and cause leverage to spike above our 4.5x downgrade threshold in fiscal 2020 from 3.8x as of Dec. 31, 2019. Cimpress predominantly operates in Europe and North America, where the spread of COVID-19 has been extensive and social distancing measures to prevent its spread have forced much of the population to remain in their homes. This has impaired micro and small businesses that rely on in-person interaction, likely significantly reducing Cimpress' sales of specialized business cards, postcards, signage, and apparel to these customers.
The negative outlook reflects the uncertainty surrounding the duration and severity of the COVID-19 impact on Cimpress and the risk that operating performance declines will extend through the calendar year, with leverage remaining elevated over the next two years.
We could lower the rating if in-person interactions remain limited because of the pandemic through the rest of the calendar year, substantially reducing revenue and EBITDA. In this scenario, we would expect leverage to remain above 5.25x for an extended period.
We could revise the outlook to stable if we see evidence that Cimpress' customer base of micro and small businesses resumes normal operations, we expect Cimpress' EBITDA will improve to pre-virus levels within 12 months, and we expect leverage will remain in the 4.5x-5.25x range. We could raise the rating back to 'BB-' if the impact of the virus is not as severe as we expect, the company successfully enacts cost cutting and cash flow preservation measures, and we expect leverage will return below 4.5x within the next 12 months.
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