S&P cuts Pre-Paid Legal Services

Standard & Poor's said it lowered its corporate credit rating on Pre-Paid Legal Services Inc. to B+ from BB- and lowered its bank loan rating on the company's proposed $160 million senior secured credit facilities to B+ from BB-. S&P said it has affirmed its 5 recovery rating.

Proceeds from the new credit facilities will be used to fund share repurchases, to repay about $30 million in existing debt and for general corporate purposes.

The outlook is stable.

The downgrade reflects S&P's heightened concerns regarding litigation risk following a recent jury award of $9.9 million in punitive damages to plaintiff Barbara Booth in Mississippi that charged the company with misrepresentation and fraud.

The company will seek appellate review of all aspects of this verdict and will continue to vigorously defend this case and other similar claims. However, while the amount of damages in this case is at a manageable level for the company, S&P said it is concerned about additional negative outcomes for pending cases, as well as the potential for additional lawsuits to be filed.

Importantly, S&P said it believes this verdict may potentially affect the company's ability to attract and retain new members and sales associates.

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