-- U.S. direct marketer of value priced party supplies, toys, and arts
Oriental Trading Co. Inc. (OTC) entered into an agreement to be acquired by
Berkshire Hathaway Inc..
-- We are placing all ratings on OTC, including the 'B' corporate credit
rating, on CreditWatch with positive implications
-- The CreditWatch placement reflects our expectations that following the
closure of the transaction we will raise our corporate credit rating on OTC to
'BB-', two notches above the existing rating on the company.
As Standard & Poor's previously stated, on Nov. 6, 2012, Standard & Poor's
Ratings Services placed all its ratings, including the 'B' corporate credit
rating, on Omaha, Neb.-based Oriental Trading Co. Inc. on CreditWatch with
The CreditWatch placement follows the announcement that Berkshire Hathaway
Inc. (AA+/Negative/A-1+) entered into an agreement to acquire OTC. It also
reflects our expectation that we will raise our corporate credit rating on OTC
to 'BB-' from 'B'. The expected two-notch upgrade reflects our view that OTC's
financial risk profile will benefit from the acquisition by much stronger
Berkshire Hathaway. We anticipate that all outstanding debt at OTC will be
paid off following the closure of the transaction.
In addition, we believe OTC's recent efforts to revitalize the company's brand
will continue to propel operational gains and support cash flow generation for
We currently view OTC's business risk profile as "vulnerable" and its
financial risk profile as "aggressive" under our criteria. Pro forma for the
reduction of the company's term loan subsequent to the June 30, 2012, quarter
we estimate that leverage is about 2.7x.
The CreditWatch placement reflects our expectation that we could raise our
corporate credit rating on OTC to 'BB-' as a result of the announced
transaction and anticipation for continuous profitability gains.
Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Criteria: Insurance General - Group Methodology, April 22, 2009
-- 2008 Corporate Criteria Methodology, April 15, 2008
Oriental Trading Co. Inc.
Corporate Credit Rating B/Watch Pos/-- B/Stable/--
Senior Secured B/Watch Pos B
Recovery Rating 4 4