Moody's: American Greetings positive

Moody's Investors Service said it revised the outlook on American Greetings Inc. to positive from stable, upgraded the company's subordinated debt ratings, and affirmed the company's other ratings.

Moody's said the rating action reflects American Greetings' improving credit profile, as supported by its strong free cash flow generation in fiscal 2004 (ended February 2004) and the recent announcement that it will use its cash balances to tender for its remaining $196 million 11.75% subordinated notes.

Moody's took the following actions: Affirmed the senior implied rating at Ba1; affirmed the $195 million senior secured revolver at Ba1; affirmed the $300 million 6.1% senior notes due 2028 at Ba1; upgraded the $196 million 11.75% senior subordinated notes due 2008 to Ba2 from Ba3; upgraded the $175 million 7% convertible subordinated notes due 2006 to Ba2 from Ba3; affirmed the $300 million senior unsecured shelf rating at prospective Ba2; and affirmed the senior unsecured issuer rating at Ba2.

Moody's added that the ratings are restrained by American Greetings' now moderate debt levels and its fixed cost structure, which heighten the risks inherent in this consumer product segment, such as persistently stagnant growth conditions, fierce competition, weak consumer branding, and increased retailer bargaining power.

Additional concerns include the industry standard practice of large discount payments to secure long-term selling contracts that are then amortized as an offset to sales. The application of this practice can result in significant sales and cash flow swings and can obscure operating trends.

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