Merrill Profits From Capital Markets Uptick

Merrill Corp., a communications and documents services provider, has improved its overall financial performance in the last six months as the company has benefited from the increased activity in the public debt and equity markets. But this higher-margin capital-markets related business is volatile and the margins in its non-transactional-related businesses are much thinner, notes Moody's Investors Service.

Merrill is pursuing a new $200 million credit facility to refinance existing debt and pay down $38 million of 13% senior discount notes held by controlling shareholder Credit Suisse First Boston. According to John Page, an analyst at Moody's, the proposed financing will also alleviate the amortization pressure associated with the printing company's 2005 maturities. "If they get the deal done, they'll push the maturities out," he said, adding that the new facility will provide Merrill with more liquidity than the current deal.

The new loan, led by CSFB and Bank of America, comprises a $50 million revolver and $150 million "B" loan. The facility will refinance a $28 million "A" loan and $118 million "B" loan. The new bank debt has been assigned a B1 rating, a notch higher than the existing debt.

The reasons for the upgrade include the recent improvements in the company's core financial documents printing business. For its latest fiscal quarter, Merrill recorded an 81% increase in EBITDA over last year to $11.4 million. Merrill has also succeeded in its diversification initiatives and improved financial leverage. But, according to Page, some negative considerations have to be noted. These include the company's high concentration in the volatile financial print market space. Also, the company still has high leverage at 3.8 times and this rises to 4.5 times when redeemable preferred stock is included, Moody's adds. A Merrill spokeswoman did not return calls.