Chatham Asset Management Sends Letter To R.R. Donnelley & Sons Board Of Directors Outlining Initial Value Enhancing Proposals

Urges Company to Articulate a Coherent and Comprehensive Financing Plan to Optimize its Capital Structure and Address Near-Term Debt Maturities

Chatham is Encouraged by RRD's Expression of Willingness to Engage in Productive Dialogue

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Chatham Asset Management, LLC

Feb 12, 2020, 14:01 ET

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.