Moody's rates American Greetings notes Ba2, cuts convertibles

Moody's Investors Service said it has affirmed American Greetings Corp.'s Ba1 corporate family rating and assigned a Ba2 rating to the company's proposed $200 million senior unsecured notes due 2016.

Moody's also said it lowered the ratings on the company's convertible subordinated notes to Ba3 from Ba2, reflecting their contractual subordination to the new unsecured notes.

The Ba1 corporate family rating is primarily driven by the significant business risks inherent in the social expressions industry that is characterized by low or declining growth rates, persistently fierce competition, weak consumer branding and increased retailer bargaining power that is consistent with a Ba ratings profile, the agency noted.

American Greetings' investment-grade-like credit metrics are not sufficient, in Moody's view, to offset these business risks.

Moreover, Moody's said it believes the company's financial policy is more consistent with a Ba rated company, given its appetite for material share repurchases.

Notwithstanding these concerns, the Ba1 rating is supported by the company's leading and stable market position in the U.S. greeting card industry with about 35% market share, and a stronger position with mass merchandisers, due to the predictable demand for its products and long-standing customer relationships.

The outlook remains negative.

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