NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A-' rating to Mattel Inc.'s (Mattel) $500 million senior unsecured notes issuance with the following tranches:
--$250 million due in 2018;
--$250 million due in 2023.
The Rating Outlook is Stable.
Mattel intends to use the net proceeds from this debt issuance for general corporate purposes including the repayment of four notes totaling $400 million that mature in 2013.
The new notes contain a Change of Control Repurchase Event provision. Upon the occurrence of both a Change of Control and rating downgrades below investment grade by each of the three rating agencies, unless Mattel exercises its right to redeem the notes, the company will be required to make an offer to purchase the notes at a price equal to 101% of the aggregate principal amount plus accrued and unpaid interest. The note indenture contains limitations on liens and sale-leasebacks but does not contain financial covenants.
KEY RATING DRIVERS
The ratings reflect Mattel's leading position in the traditional toy industry, significant scale with over $6 billion in revenues, strong brands with proven longevity, ample liquidity and a broadly diversified product portfolio. Geographic diversification is also well balanced with 48% of revenues generated outside the U.S. These factors help to mitigate key industry challenges of seasonality, retailer concentration and fashion risk.
The company's financially conservative policies designed to maintain a strong balance sheet and healthy cash flow also supports the rating. Mattel has had fairly steady performance over a long period of time. Leverage (debt/EBITDA) at the end of 2012 was approximately 1.1x and has not exceeded 1.4x in more than 10 years. Leverage is expected to remain in the 1.4x range or less going forward. FFO adjusted leverage has been less than 2.7x over the comparable period. FCF was a record $633 million in 2012. It is expected to remain robust but down moderately in 2013 if a $137.8 million payment related to the Carter Bryant and MGA Entertainment, Inc. lawsuit is made this year. Mattel has room within its ratings to add a moderate amount of incremental debt.
STABLE OUTLOOK
The Stable Outlook is underpinned by Mattel's consistent track record and management's conservative financial posture. The company has a capital and investment framework that has been in place since 2003 which includes maintaining approximately $800 million to $1 billion in year-end cash and a year-end debt-to-capital ratio of about 35%. At Dec. 31, 2012, the debt-to-capital ratio was within management's expectations at 33% and cash of $1.3 billion well exceeded year-end cash goals. The 35% equates to debt/EBITDA of approximately 1.2x, which is within the company's historical range, and is a factor in Mattel's strong credit protection measures that supports both the Outlook and the rating. Any material tightening or loosening of its capital and investment framework would represent a change in management's financial strategy and could have rating implications.
FINANCIAL PERFORMANCE
Mattel has been gaining share with well received brands such as Monster High and American Girl. The company's core sales incorporating mix and price increases more than offset the 2% negative drag from foreign exchange translation. As a result, revenues were up 2% to $6.4 billion. Operating income which excludes the $137.8 million litigation charge, improved almost 26% to $1.4 billion as pricing, mix and cost savings offset higher input and other costs. The company's strong financial performance and improved working capital set the stage for record FCF in 2012.
LIQUIDITY
Mattel's liquidity is considerable at the end of its fiscal year. The company had $1.3 billion in cash, as mentioned previously, and a $1.4 billion unutilized revolving credit facility which matures in March 2015. Debt maturities are modest. After the $400 million (a $350 million note due in March 2013 and three small notes totaling $50 million due in November 2013) notes are repaid with proceeds from this issuance, there are no long term debt maturities in 2014 and 2015.
RATINGS SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating actions include a commitment to operating with leverage under 1x and FCF consistently over the long term average of $300 million, all while maintaining or growing market share.
Negative: Future developments that may potentially lead to a negative rating action are large leveraged share repurchases or acquisitions. These management controlled directives are not expected.
Exogenous developments that could potentially lead to a negative rating action could be a material and consistent loss of market share or a secular decline in the traditional toy industry such that the company is unable to maintain its capital and investment framework and current credit protection measures.
Fitch rates Mattel as follows:
--Long-term Issuer Default Rating (IDR) 'A-';
--Short-term IDR 'F2';
--Commercial
Paper program 'F2';
--Unsecured bank facility 'A-';
--Senior
unsecured notes 'A-'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating
Methodology' (Aug. 8, 2012)
Applicable Criteria and Related Research
Corporate Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
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