Fitch Ratings has assigned a 'BBB+' rating to Hasbro, Inc.'s (Hasbro) new five-year, $425 million senior unsecured notes. The note is expected to settle on May 13, 2009 and has a coupon of 6.125%. The company will use up to $300 million of the net proceeds to pay the purchase price on its 50% interest in the joint venture with Discovery and up to $15 million to fund the joint venture's (JV) future cash flow needs. The remainder will be used for general corporate purposes.
These notes, issued under the indenture dated March 15, 2000, contain added protection for bondholders in the form of a repurchase upon a change of control triggering event. The provision provides that if there is a change of control which is defined to include a person who becomes a beneficial owner of more than 50% of the outstanding voting shares among others, and, each of the three rating agencies downgrades Hasbro below investment grade as a result of this change, then an offer will be made to repurchase all or any part of the notes at 101% of the aggregate principal amount plus accrued and unpaid interest. There is also interest rate adjustment language which would be triggered if the company's rating dropped below investment grade.
The rating reflects the volatility inherent in the toy industry, Hasbro's leading position in the traditional toy industry with revenues of $4 billion, and improved operating performance. As mentioned in Fitch's press release of April 30, 2009, Fitch's rating on Hasbro contemplates financing for the $300 million investment in the JV. Fitch also noted the limited impact the JV operations will have on the company's financial performance for several years.
Fitch expects that Hasbro's revenues will be pressured in the current economic environment and negative foreign exchange but there is support from a movie slate including Wolverine, Transformers 2, and GI Joe that should moderate potential declines in 2009. Fitch notes that the company's margins dipped in the fourth quarter as more support was provided to the trade but that level of support is not expected going forward. As a result operating margins should revert to normal levels in 2009. Free cash flow is expected to decline modestly off 2008's strong level despite the top-line pressure and higher interest costs but remain solid over the next two years. The overall liquidity outlook remains strong in the medium term and should allow the company the room to operate reasonably well in this environment.
Hasbro's credit metrics are strong with leverage (total debt/EBITDA) at 1.2 times (x) and EBITDA to interest coverage a healthy 14.1 times at the last 12 months (LTM) ended March 29, 2009. With this transaction, pro-forma LTM leverage (Debt/EBITDA) would have increased to 1.8x and EBITA/Interest coverage would be 10x. Both metrics are roughly in line with management's fiscal year-end goals. Fitch expects that the leverage metric will improve to 1.5x, within management's guidelines, in the medium term.
Hasbro's solid liquidity is exemplified by its high cash balances, free cash flow (cash flow from operations, less dividends and capital expenditures) averaging $329 million over the past four years and an unused $300 million revolver which does not expire until 2011. Hasbro has no debt maturities until 2014.
Fitch currently rates Hasbro as follows:
--Issuer Default Rating (IDR) 'BBB+';
--Unsecured bank facility 'BBB+',
--Senior notes 'BBB+'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings, New York
Grace Barnett, CPA, +1-212-908-0718
Thomas
P. Razukas, CFA, +1-212-908-0223
Media Relations:
Cindy
Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com