Moody's cuts some Oriental Trading ratings, rates add-ons B1, B3

Moody's Investors Service downgraded the senior implied and second-lien senior secured ratings of Oriental Trading Co. Inc. to B2 and B3, respectively, and affirmed the first-lien senior secured rating of B1.

In addition, Moody's rated Oriental Trading's proposed incremental $30 million first-lien senior secured term loan B and $42 million second-lien senior secured term loan at B1 and B3, respectively.

Proceeds and cash on hand of $29.7 million will fund a $100 million dividend to shareholders and will take leverage to about 5.0x net debt to adjusted EBITDA from 3.8x.

The outlook, which had been negative, has been revised to stable at the new rating level.

Moody's said the ratings are restrained by the non-productive use of cash and an increase in leverage to fund a dividend at a time when sales and profit growth are slowing and the company needs to invest in capital spending to add incremental distribution capacity. The ratings also recognize the aggressive financial policy that has resulted in significant capital being returned to its financial sponsor through debt-financed transactions over the past few years.

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