Moody's lowers MEGA Brands

Moody's Investors Service said it downgraded MEGA Brands, Inc.'s corporate family rating to B1 from Ba3, its probability-of-default rating to B2 from B1 and its $120 million five-year revolving credit facility and $40 million five-year term loan A facility to Ba3 (LGD2, 26%) from Ba2 (LGD2, 24%). The speculative grade liquidity rating was affirmed at SGL-3.

The agency also downgraded MEGA Brands Finco's $260 million seven-year term loan B facility to Ba3 (LGD2, 26%) from Ba2 (LGD2, 24%).

This concludes the review for downgrade begun on April 19, and the outlook is stable.

According to Moody's, the downgrade was due to a deterioration in MEGA's financial metrics that resulted from significant additional charges reported in 2006 and the first quarter of 2007, primarily related to Magnetix product safety issues for the recall, redesign, repackaging and restocking of the product as well as payments made to settle related consumer litigation, and the uncertainties that still exist concerning the Rose Art business and its Magnetix brand.

These issues are partially offset by the company's leading market position in a limited number of narrow categories, a growing product portfolio with some well-known brands in attractive categories, healthy levels of organic growth in most product lines and certain long-term benefits expected from the Rose Art acquisition, the agency added.

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