Presentation to the Allianz SE High Yield Group May 31, 2016 - PDF document

Presentation to the Allianz SE High Yield Group May 31, 2016 Michael McGillen David Hollander Kathy Mohanna Will Hasten

PRESENTATION TO THE ALLIANZ SE HIGH YIELD GROUP Table of Contents Executive Summary ............................................................................................................................. 3 Company ................................................................................................................................................... 6 History & Business Description ............................................................................................... 6 Manufacturing Process & Value Chain ................................................................................. 9 Products ............................................................................................................................................... 9 Management .................................................................................................................................... 11 Shareholder Profile ..................................................................................................................... 13 Capital Structure ........................................................................................................................... 14 Recent Financial Performance .............................................................................................. 18 Segment Financial Analysis ..................................................................................................... 19 Industry .................................................................................................................................................. 22 Market Trends ............................................................................................................................... 22 Competitive Landscape ............................................................................................................. 26 SWOT Analysis ............................................................................................................................... 29 Valuation ................................................................................................................................................ 30 Discounted Cash Flow Analysis ............................................................................................. 30 Comparable Companies Analysis ......................................................................................... 31 Precedent Transactions Analysis ......................................................................................... 33 Historical Prices Analysis ........................................................................................................ 34 Sum-of-the-Parts Analysis ....................................................................................................... 35 Plan of Reorganization ................................................................................................................... 36 Key Challenges to Financial Restructuring ..................................................................... 36 Board Control ................................................................................................................................. 37 Operational Improvements .................................................................................................... 38 Acquisitions & Divestments .................................................................................................... 42 Capital Structure Reorganization ........................................................................................ 44 Recovery Analysis ........................................................................................................................ 47 Allianz Recovery Analysis ........................................................................................................ 49 Appendix ................................................................................................................................................ 50 Exhibit 1: Comparable Trading Multiples .......................................................................... 0 1

PRESENTATION TO THE ALLIANZ SE HIGH YIELD GROUP Exhibit 2: Historical Financials – Income Statement .................................................... 1 Exhibit 3: Historical Financials – Balance Sheet ............................................................. 2 Exhibit 4: Historical Financials – Cash Flow Statement .............................................. 3 Exhibit 5: Projected Financials + Proposed Capital Structure ................................. 4 Exhibit 6: Projected Financials + Proposed Capital Structure ................................. 5 Exhibit 7: Projected Financials + Proposed Capital Structure ................................. 6 Exhibit 8: Sum-of-the-parts Valuation .................................................................................. 7 Exhibit 9: Asset Waterfall in Bankruptcy ............................................................................ 7 Exhibit 10: Pro-forma Balance Sheet following recapitalization ........................... 8 Exhibit 11: Pre-Restructuring Debt Repayment Schedule ........................................ 8 Exhibit 12: DCF Sensitivity ......................................................................................................... 9 2

PRESENTATION TO THE ALLIANZ SE HIGH YIELD GROUP Executive Summary Cenveo Corporation ( ‘ Cenveo ’ or ‘ the Company ’) is a market-leading manufacturer of envelopes, labels, and commercial print applications. Over the last ten years, it has been beset by secular declines in nearly all of its businesses. As advertising spend continues its shift toward digital customer acquisition, direct-mail-dependent Cenveo has seen pricing and sales volumes worsen. It has attempted three re- financings in six years and our analysis indicates a likely bankruptcy within three. Negative revenue growth, untenable 8.7x EBITDA leverage, an ABL facility drawn dangerously close to its $190mm limit, and $540mm of first-lien notes coming due in 2019 all spell reorganization for the envelope giant. There has been a growing trend among private equity and hedge funds with appetites for equity-like risks/rewards to use debt as a way for acquiring control of financially distressed companies. The most common approach is to acquire discounted loans ( e.g. , second-lien loans, senior subordinated notes, etc.) in the secondary market or by lending more money to the company to avoid bankruptcy. Underlying the success of such strategies is growing evidence of creditors effectively influencing management and the overall direction of a company. 1 An effective “loan -to- own” strategy should minimize the risk of litigation, liquidation (i.e., the target company fails) and valuation that exceeds the investor’s value proposition. As a result, any firm engaging in a loan-to-own strategy using the junior debt must account for the interests of other creditors and management. 1 “Creditor Control and Conflict in Chapter 11”, Kenneth Ayotte and Edward Morrison, 2009 3

PRESENTATION TO THE ALLIANZ SE HIGH YIELD GROUP European insurance company Allianz SE (“Allianz”) began purchasing Cenveo second lien, unsecured debt, and equity when Cenveo refinanced its obligations in 2012, and increased the investment in 2013 and 2014. Currently, Allianz is the largest single holder of debt and equity in the company 2 . Allianz’s strategy has many of the trademarks of a loan-to-own strategy, including a pending exchange of existing junior debt for a combination of senior debt and equity. Following the exchange, Allia nz’s total potential position in Cenveo will be $204mm, including warrants to purchase an additional 15% in equity. Table 1 - Allianz's (nominal) position in Cenveo % Amount Security Outstanding ($mm) Secured Senior Note (New from Allianz) 100.0% $50.0 2019 Senior Priority Secured Notes (1st Lien) 5.0% $27.0 2022 Junior Priority Secured Notes (2nd Lien) 13.0% $32.2 2024 Senior Unsecured Notes (New) 68.4% $71.8 Equity (assuming exercised warrants) 28.4% $23.2 Total Potential Investment $204.2 In order for the trade to be profitable, Allianz must successfully navigate potential conflicts with equity holders, management, and senior creditors; our analysis shows that Allianz is unlikely to recover full value should the first lien holders push Cenveo into bankruptcy. Therefore, given aforementioned loan-to-own trends and Allianz’s position , we chose to address our Plan of Reorganization recommendations to their High Yield 2 FactSet 4