Investing.com -- Fitch Ratings has lowered ACCO Brands (NYSE: ACCO ) Corporation’s ratings, including its Issuer Default Rating (IDR) to ’BB-’ from ’BB’. The downgrade also affects ACCO Brands Australia Holding Pty Limited’s senior secured revolving credit facility and senior secured term loan ratings, which have been revised to ’BB+’ with a Rating Recovery of ’RR1’ from ’BBB-’ / ’RR1’. ACCO’s senior unsecured notes have been marked down to ’BB-’/’RR4’ from ’BB’ / ’RR4’. The Rating Outlook is Negative.
The downgrade is due to Fitch’s anticipation that ACCO’s leverage will remain above 3.5x for the next few years, and EBITDA will stay under $200 million, both of which are lower than Fitch’s former projections. Fitch predicts that ACCO’s EBITDA could drop to around $190 million with leverage exceeding 4.0x in 2025. Fitch may stabilize ACCO’s Outlook if the company can maintain EBITDA at these levels while reducing debt so that leverage stays under 4.0x.
Fitch’s base case assumes ACCO’s leverage will remain above 3.5x for the next few years, higher than the previous expectations of leverage dropping below 3.5x in 2025. Leverage could reach around 4.2x in 2025, a rise from 3.7x in 2024, before decreasing to the mid-to-high 3.0x range in 2026 and beyond, propelled by debt reduction. Further declines in EBITDA or debt-financed acquisitions could result in leverage remaining above the 4.0x downgrade sensitivity.
Fitch expects ACCO’s sales to decrease by high single digits in 2025, to around $1.5 billion, compared to $1.67 billion in 2024. The downward pressure on sales from secular declines, soft demand, and portfolio rationalization are expected to be worsened by a tariff-related pullback in demand and negative consumer sentiment.
ACCO’s exposure to secular declines in the office products category due to the shift toward digital technologies and away from paper is a significant challenge to its credit profile. ACCO may need to make acquisitions that successfully shift its business mix toward less-cyclical or higher-growth categories to support meaningful organic growth.
ACCO is expected to generate FCF margins in the mid-single digit percentage of revenue range, supporting its liquidity profile. The company has no near-term debt maturities after it extended its credit facilities in October 2024. The company made a $10m acquisition and repurchased million in shares in the first quarter of 2025.
ACCO’s ’BB-’ rating reflects its leverage sustained above 3.5x over the next several years, and its significant decline in scale over the past several years driven by secular challenges, balanced by consistent FCF generation and good profitability. The Negative Outlook is driven by concerns the company may not be able to stabilize its operations over the next 12-24 months while maintaining leverage below 4.0x.
Fitch rates ACCO’s first-lien secured debt ’BB+’/’RR1’, two notches above the IDR, reflecting outstanding recovery prospects in the event of default. ACCO’s unsecured debt has average recovery prospects and is rated ’BB-/’RR4’.
Factors that could lead to a downgrade include continued declines in sales or profitability leading to EBITDA approaching $150 million, EBITDA leverage sustained above 4.0x, or a debt-financed acquisition without a concrete plan to reduce EBITDA leverage to below 4.0x within 12-24 months of the close of the acquisition.
On the other hand, an upgrade is unlikely in the near term given the existing business model and industry issues. However, an upgrade could be possible if ACCO makes favorable acquisitions that successfully shift its business mix toward less-cyclical or higher-growth categories, supporting stable sales, EBITDA sustained in the mid-to-high $200 million range, and EBITDA leverage below 3.5x. The Outlook could be stabilized if Fitch gained increased confidence that ACCO was able to stabilize its business and operations over the next 12 months-24 months while sustaining leverage below 4.0x.
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