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TEXT-S&P puts Oriental Trading ratings on watch positive
November 7, 2012 / 2:41 PM / 5 years ago

TEXT-S&P puts Oriental Trading ratings on watch positive

Overview
     -- 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.

Rating Action
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 
positive implications. 

Rationale
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 
the company.  

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.  

CreditWatch
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

Ratings List
CreditWatch Action
                                        To                 From
Oriental Trading Co. Inc.
 Corporate Credit Rating                B/Watch Pos/--     B/Stable/--
 Senior Secured                         B/Watch Pos        B 
  Recovery Rating                       4                  4

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