Moody's Assigns Ratings to Hasbro's (HAS) 7-, 30-Year Notes

Moody's assigned Baa2 ratings to Hasbro's (Nasdaq: HAS) new 7 and 30 year notes issuance. Proceeds will be used to repay the $425 million 6.125% due May 2014 upon maturity, and for general corporate purposes.

RATING RATIONALE

Hasbro's Baa2 rating is based on its solid market position, portfolio of strong brands, broad geographic diversification, conservative capital structure, and strong credit metrics. These positives are offset by the toy industry's seasonality and inherent volatility due to fashion risk that not only reflects the sudden shifts in the popularity of certain toy products but also includes the fluid demographics such as age compression that exist for certain toy categories. The ratings also reflect Hasbro's limited size and segment diversification relative to much larger and more diversified packaged goods companies. Further constraining the rating are the company's modest overall organic growth prospects in the core domestic markets, ongoing investment at Hasbro Studios for television programming, still meaningful reliance on entertainment releases, highly concentrated customer base and ongoing exposure to input cost increases.

The stable outlook reflects Moody's assumption that Hasbro will continue to deliver strong earnings and cash flows. It also reflects Moody's assumption that the company will conservatively manage its capital structure and liquidity.

A rating upgrade would require clear evidence that Hasbro's core brands are experiencing sustained organic growth (offsetting a potential fall-off in revenue related to its entertainment portfolio). The company would also need to maintain strong profitability, stable cash flows and a prudent financial policy. Moody's would look for continued evidence that the company can produce stable earnings and cash flow irrespective of movie releases. In addition, quantitatively, an upgrade would require the company to maintain its credit metrics at or better than current levels, with debt to EBITDA sustained below 2 times and EBIT/interest sustained above 8 times.

Conversely, an inability to replace entertainment related revenues or to continue growing core revenues, any other operating softness or more aggressive financial policies that caused EBIT/interest to drop below 5x or debt to EBITDA to rise above 2.5 times, could result in a rating downgrade.

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