Moody's downgrades Merrill

Moody's Investors Service said it downgraded Merrill Corp.'s corporate family rating to B3 from B2 and probability-of-default rating to Caa1 from B2 and Merrill Communications LLC's senior secured second-lien bank credit facility to Caa2 (LGD4, 69%) from Caa1 (LGD5, 86%).

The B1 rating on Merrill Communication's senior secured first-lien bank credit facility is unchanged, but the loss-given-default assessment was revised to LGD2 (21%) from LGD3 (35%).

The outlook remains negative.

The agency said the downgrade is a consequence of its updated expectations of the company's ability to generate free cash flow with which to amortize its debt. With recent performance being much weaker than previously anticipated, and with earning's visibility being quite poor, Moody's said it is not clear whether the company will be able to generate meaningful free cash flow over the next several quarters.

In turn, unless credit market conditions improve and give Merrill the ability to refinance its debts on economically reasonable terms, the company may need to access new capital and/or partially restructure its debts via some form of exchange offering, Moody's said.

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