Moody's lowers American Greetings

Moody's Investors Service said it lowered American Greetings Corp.'s corporate family and probability-of default ratings to Ba2 from Ba1, senior secured revolving credit facility due 2011 at Ba1 (LGD2, 24), senior secured delay draw term loan facility due 2013 at Ba1 (LGD2, 24%) and senior unsecured notes due 2016 to Ba3 from Ba2 (LGD5, 77%).

The agency said the downgrade is a result of the increase in debt needed to fund a newly established $75 million share repurchase program despite an already sizable rise in debt during fiscal 2009 and a notable deterioration in operating performance.

The Ba2 corporate family rating is driven by the significant business risks inherent in the greeting card industry that is characterized by low or declining growth rates, weak consumer branding, strong competition, and vulnerability to its stronger retail customers and its ongoing consolidation, Moody' said.

The rating is supported by the company's leading and stable market position in the U.S. greeting card industry, predictable demand for its products and key relationships with retail customers, the agency noted.

The greeting card sector provides a higher margin return for its customers and the company's long-term contracts and scan-based trading systems provide a meaningful barrier to entry, the agency said.

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