Benzinga | Sep 16, 2020 04:21PM EDT

Chatham Asset Mgmt. Sends Letter To RR Donnelley; Commends Co. For Recent Strategic Transactions, Engagement With Stakeholders

September 16, 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

Dear Messrs. Pope and Knotts:

We first want to commend the management team on the recent operating performance and navigating the extremely difficult economic climate. Secondly, while we were surprised by the recently announced sale of DLS Worldwide, this is precisely the type of transaction that both addresses company objectives and signals to the market that R. R. Donnelley is committed to creating further value for all stakeholders.

Further, we wish to commend the company's willingness to engage with its stakeholders in recent months. The debt exchanges completed over the summer exemplify the benefits of a productive relationship with debtholders, one that is proactive in addressing maturities and extending the maturity runway for R. R. Donnelley's continued financial transformation. In particular, we have found a willing partner in R. R. Donnelley's Chief Financial Officer, Terry Peterson, and we look forward to continuing this ongoing dialogue.

It is in the spirit of these extremely positive developments and constructive relationship that we now write. We believe, considering the substantial boost to liquidity represented by the sale of DLS Worldwide, that it is in the best interests of the company and its stakeholders for R. R. Donnelley to address its very quickly upcoming maturities, specifically the roughly $150 million in debt coming due in March and April of 2021. It is our view that an immediate defeasance transaction would remove any doubts or concerns regarding liquidity, and a defeasance is far superior to simply leaving the cash on the balance sheet. The company will undoubtedly benefit from removing any broader concerns about the capital structure. Additionally, as we understand the seasonal nature of R. R. Donnelley's business, the first quarter is one in which much of the company's available liquidity must go to preparing to fulfill second half orders. As such, we believe management would be continuing its prudent and forward-looking oversight by addressing these commitments sooner rather than later, and we are supportive of removing this uncertainty from the capital structure with immediate effect.

Lastly, given the depressed valuation of the equity, we believe that the company should consider repurchasing stock and/or a stock repurchase program. While we acknowledge that management is rightly focused on its liquidity and debt reduction, we note that on September 15, R. R. Donnelley's share price gained some 16% on the news of its recent asset sale and yet the entire market capitalization is still under $100 million. Management would do well to use a relatively small amount of liquidity to remove between 10% and 20% of the outstanding share count at these very low prices.

Sincerely,

/s/

Anthony Melchiorre

Managing Member

Chatham Asset Management