OREANDA-NEWS. Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Pitney Bowes Inc. (PBI) and its subsidiary, Pitney Bowes International Holdings, Inc. (PBIH) at 'BBB-'. The Rating Outlook remains Stable. The Stable Outlook reflects the actions taken by Pitney Bowes to reduce debt and leverage and improve its operations. A full list of ratings actions follows at the end of this release.

KEY RATING DRIVERS

The ratings are supported by: PBI's significant and entrenched market position in the core U.S. Mailing business; the necessity of mail equipment and services to conduct business across all industries; and the diversity of the company's customer base, from both an industry and size perspective.

PBI has stated its commitment to investment grade metrics, although these metrics and their levels have not been defined. Fitch believes that various actions taken over the last 36 months demonstrates PBI's commitment. PBI has reduced its total debt, including PBIH's preferred securities, from \$4.5 billion in 2011 to \$3.3 billion at the end of 2014 (pro forma for the cash repayment of a \$275 million bond that matured in March 2015). Unadjusted pro forma gross total leverage has declined from 4.7x in 2011 to approximately 3.8x and core leverage has gone from 4.3x at year-end (YE) 2011 to 2.8x. Fitch expects 2015 YE total leverage to be in the range of 3.6x.

Fitch is not expecting any material acquisition or share buyback activity, and there is limited room within the ratings for any substantive share buyback activity. Any debt-funded share buyback activity or a material debt-funded acquisition would be outside of current ratings.

Fitch continues to be concerned with overall top-line declines, driven by weakness in small and medium-sized businesses (SMBs), although the declines have been moderating. For 2014, PBI's digital commerce solutions business was up 21%, driven by 7.8% growth from software sales, just enough to offset the declines in PBI's core mailing business on a constant currency basis. SMB ended the 2014 fiscal year down 4.3% driven by a 4.1% decline in the North American mailing segment and a 5% decline internationally. Enterprise Businesses declined 2.5% in 2014 driven by a 10% decline in production mail due to weak equipment sales. The historical decline in equipment sales was also concerning due to the impact on future financing, rental and supplies revenue. PBI has provided 2016 revenue guidance of flat to up 3%, on a constant currency basis; Fitch believes this is achievable. There is limited room in the ratings for PBI to fall short on these revenue expectations.

Ratings concerns include the secular and cyclical pressures inherent to the business and top-line declines. The ratings also consider event risk, faced by bondholders of all companies with secular challenges and underperforming equity, of a potentially more aggressive financial policy and capital structure.

Fitch believes cyclical pressures accelerate the well-documented secular challenges, as customers could look to digital mailing as a cost-reduction mechanism, and choose to keep existing equipment. The acceleration of digital substitution for physical transaction mail results in reduced need for PBI's mailing equipment. Although the majority of PBI's revenue is not directly tied to mail volume, Fitch believes continued mail volume declines could drive reduced equipment needs, whether in terms of size, number or functionality.

PBI's initiatives to position itself more as a digital and services company continue to show traction. At YE 2014, Digital Commerce Solutions constituted 24% of total revenue, up from 15% at YE 2012. That said, in the near term, these initiatives will be challenged in offsetting the declines in the high-margin North American mailing space. These products could cannibalize existing physical business, but Fitch believes such a strategy is unavoidable, given ongoing digital substitution.

Liquidity

PBI's liquidity position at Dec. 31, 2014 was solid, consisting of \$609 million of cash on hand and an undrawn \$1 billion revolving credit facility maturing in January 2020, which backstops the company's \$1 billion commercial paper program. Liquidity is further supported by the company's annual free cash flow (FCF) generation.

Fitch calculates 2014 FCF at \$287 million. Fitch's current base case projections estimate annual FCF at \$150 million-\$250 million for the next few years. Fitch's FCF calculation deducts PBI's common and preferred dividend payments and does not add back cash flows associated with restructuring payments, and tax payments related to sales of leveraged lease assets.

PBI faces material annual maturities over the next several years. However, Fitch recognizes that the company can address a significant portion of its maturities organically with its pre-dividend FCF generation.

As of Dec. 31, 2014, PBI's total debt was \$3.5 billion (\$3.3 billion pro forma for repayment of the March 2015 maturity). Fitch estimates that this consists of:

--\$2.8 billion of senior unsecured debt, maturing between 2016-2024 (\$2.3 billion), one maturing in 2037 (\$115 million) and one maturing in 2043 (\$425 million);
--\$130 million in term loans due in 2015/2016;
--\$300 million of variable-term voting preferred stock in the company's subsidiary, PBIH. Under Fitch's hybrid security criteria, Fitch assigns 0% equity credit given the less than five-year maturity (based on the October 2016 call date).

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--De-levering to 3.5x within 12 to 18 months;
--Minimal margin improvement as a majority of the company's expected cost savings have been realized;
--No material change to stated dividend and share buyback policy;
--Majority of maturities are refinanced.

RATING SENSITIVITIES

Positive: Given the secular challenges facing the company, Fitch does not expect positive rating momentum in the near term. Sustainable revenue growth driven by the company's various product initiatives coupled with a commitment to continue reducing absolute levels of debt may drive positive rating momentum.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Lack of traction in the company's digital initiatives and other growth businesses amid ongoing declines in the traditional physical business. Also, sustained revenue declines in the mid- to high-single-digits would pressure the ratings;

--A sustained increase in total leverage from current levels, whether the result of incremental debt or lower EBITDA;

--Indications of a more aggressive financial policy.

Fitch affirms Pitney Bowes as follows:

Pitney Bowes
--IDR at 'BBB-';
--Senior unsecured revolving credit facility at 'BBB-';
--Senior unsecured term loan at 'BBB-';
--Senior unsecured notes at 'BBB-';
--Short-term IDR at 'F3';
--Commercial paper at 'F3'.

PBIH
--Long-term IDR at 'BBB-';
--Preferred stock at 'BB'.

The Rating Outlook is Stable.