Fitch Ratings has affirmed Deluxe Corporation's (Deluxe) Long-Term Issuer Default Rating (IDR) at 'B' and revised the Rating Outlook to Positive from Stable.

Fitch has also affirmed the company's senior secured notes at 'BB' rating with a Recovery Rating of 'RR1'.

The Positive Outlook reflects Fitch's expectation of EBITDA leverage declining below 3.5x over the forecast period, along with improved profitability and free cash flow generation. The ratings reflect Deluxe's growth in the payment and data solutions segment, strong merchant partnerships and improving EBITDA margins. The ratings are constrained by secular industry headwinds in the print segment, which limit revenue growth over the forecast period.

Key Rating Drivers

Manageable Leverage: Fitch expects Deluxe's EBITDA leverage to remain below the 3.5x range post 2025, as management continues its strategy of reducing selling, general, and administrative expenses. and restructuring expenses through Project NorthStar. Fitch also expects restructuring expenses to decline to nearly half of 2024 levels in 2025 and to reduce further in 2026. Management has expressed a commitment to deleveraging and maintaining a long-term net leverage target of 3.0x.

Secular Industry Headwinds: Fitch believes that the print industry will continue to experience secular volume declines as digital devices reduce demand for printed products. Deluxe's print segment accounted for 57% of its FY 2024 revenue. Fitch expects the company's print segment to face ongoing headwinds, with revenue declining in the mid-single-digit range during the forecast period. However, EBITDA margins have improved, driven by Deluxe's transformation into a comprehensive payment solutions provider, cost reduction initiatives through Project NorthStar and strategic business dispositions.

Modest and Improving FCF: Despite a secular decline in the print segment, Fitch expects that Deluxe will continue to generate positive and improving free cash flow, as defined by Fitch, thereby enhancing its near-term credit strength. The stable cash flow from the print segment enables Deluxe to reinvest in its payments and data business. A key goal of Project NorthStar is to improve operational efficiency and free cash flow. Fitch expects the company's free cash flow margins to gradually expand over the forecast period.

Diversifying Revenue: Fitch believes that Deluxe's ongoing transformation into a payment solutions provider may further enhance its operating profile over time. The company is investing in unique service capabilities and technological advancements that reinforce its partner relationships, thereby fueling the growth of its payment and data segment. Revenues in this segment increased from approximately 38% in FY 2021 to about 43% in FY 2024, and Fitch expects the segment to generate over 50% of total revenue by FY 2027.

Competitive Landscape: Deluxe's end markets in the payment and data segment are highly competitive and fragmented, which could affect the IDR over time. Deluxe faces significant technological disruption and pricing competition from legacy fintech companies, large established technology providers, and emerging software-centric fintech companies. Fitch believes that barriers to entry are very limited while switching costs are moderate and vary depending on the company's offerings.

Peer Analysis

Fitch assesses Deluxe's ratings relative to peers in the printing, fintech, and services sectors. Fitch believes Deluxe is well positioned, with EBITDA leverage reducing to 3.5x or below over the forecast period, positive free cash flow, and improving EBITDA margins relative to industry peers at the 'B' rating level. The company's ratings are constrained by secular industry headwinds that limit revenue growth; however, its transformation toward payment and data solutions will help offset the decline in print revenues.

Fitch rates R.R. Donnelley & Sons Company (RRD; B/Stable), which provides printing and supply chain solutions, maintains a robust competitive position driven by its scale. However, its EBITDA margins trail those of Deluxe, and its EBITDA leverage remains in the low 4.0x range.

In the payments segment, Fitch rates MoneyGram International, Inc. (MoneyGram; B/Negative), which offers cross-border peer-to-peer payments and money transfers, displays lower EBITDA margins and higher EBITDA leverage relative to Deluxe. The company's outlook has been revised to Negative to reflect its sluggish growth and the risk that its cost and revenue initiatives may continue to underperform in reactivating growth and profitability while reducing leverage.

In comparison, Shift4 Payments (BB/Stable), which provides software and payment processing solutions, benefits from a significantly larger scale and higher free cash flow margins relative to Deluxe. Fitch expects Shift4 Payments, like Deluxe, to reduce leverage to 3.5x or below over the forecast period.

Key Assumptions

Fitch expects revenue to grow in the low single-digit range for FY 2025 and forecast period.

The payment and data segments are forecast to grow in the mid- to high single digits from FY 2025, offset by a mid-digit year-over-year decline in the print business.

EBITDA margins are expected to improve marginally over the forecast period.

Restructuring costs are estimated at about $25 million in FY 2025, declining to $10 million thereafter.

Annual dividends are projected to be in the $55 million to $60 million range.

Capex is expected to remain steady at approximately 4.5% to 4.7% of revenue across the forecast period.

Recovery Analysis

For entities rated 'B+' and below, where default is closer and recovery prospects are more meaningful to investors, Fitch undertakes a tailored, or bespoke, analysis of recovery upon default for each issuance.

The resulting debt instrument rating includes a Recovery Rating or published 'RR' (graded from 'RR1' to 'RR6') and is notched from the IDR accordingly. In this analysis, there are three steps: (i) estimating the distressed enterprise value (EV); (ii) estimating creditor claims; and (iii) distribution of value.

Key Recovery Rating Assumptions: Fitch assumes that Deluxe would be reorganized as a going-concern in bankruptcy rather than liquidated. We have assumed a 10% administrative claim.

Going-Concern (GC) Approach: Deluxe's GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which we base the enterprise valuation. The GC EBITDA is assumed at $280 million and reflects a secular decline in commercial printing and highly competitive and fragmented nature of the payment industry.

An EV multiple of 5x EBITDA is applied to the GC EBITDA to calculate a post-reorganization enterprise value. The choice of this multiple considered the following factors: The historical bankruptcy case study exit multiples in TMT sector have ranged from 4.0x-7.0x, with a median of 5.9x. The recovery analysis assumes that the Company's revolving credit facility is fully drawn to the extent of borrowing base to provide liquidity in a distress situation.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Fitch could revise the Outlook to Stable if key credit financial metrics underperform;

Failure to execute on payments and data growth leading to further revenue declines;

Sustained negative FCF;

EBITDA leverage sustained above 4.5x;

EBITDA coverage sustained below 3.0x.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Revenue and EBITDA growth sustained over a multiyear period;

EBITDA leverage sustained below 3.5x.

Liquidity and Debt Structure

Deluxe's liquidity is supported by a cash balance of $26 million in cash and net available for borrowing under the refinanced revolving credit facility of $390 million, as of June 30, 2025. Deluxe's credit facilities include secured debt consisting of revolving credit facility of $400 million, Term Loan A of $500 million and $450 million of secured notes maturing 2029.

The company also has existing unsecured notes of $475 million. Fitch expects the company to fund Term Loan A amortization payments with FCF.

Issuer Profile

Deluxe Corporation is a payments solutions company. Its primary business is print payment solutions (checks), though it is growing its digital payments and data-driven offerings.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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