Moody's ups Mary Kay bank credit to Ba2

Moody's Investors Service upgraded the rating for Mary Kay Inc.'s existing $188 million senior secured bank credit facilities to Ba2 from Ba3 and senior unsecured issuer rating to Ba3 from B1.

Ratings upgraded include the company's $50 million guaranteed senior secured revolver due 2006, to Ba2 from Ba3 and a $138 million guaranteed senior secured term loan B due 2007 to Ba2 from Ba3.

The outlook remains stable.

Moody's said the upgrade reflects strong growth in revenues coupled with a significant improvement in profit margins and operating cash flow over the past two years, which has resulted in a substantial reduction of debt and stronger credit metrics.

The company has been able to steadily grow the number of its active consultants and has begun to realize greater consultant productivity through improved product mix, merchandising incentives and greater use of the Internet for order taking and quicker corporate communication.

The ratings are restrained by increasing cash flow requirements emanating principally from deferred compensation programs that reflect the improved state of operations plus term loan amortization, which steps-up in the latter years.

Moody's noted that while bank debt leverage is relatively low, Mary Kay has sizable amounts of other accrued liabilities that significantly increase effective leverage.

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