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Rating Action:

MOODY'S ASSIGNS Ba3 RATING TO MARY KAY'S BANK CREDIT FACILITIES

10 Aug 2001
MOODY'S ASSIGNS Ba3 RATING TO MARY KAY'S BANK CREDIT FACILITIES

Approximately $420 Million of Debt Securities Affected.

New York, August 10, 2001 -- Moody's Investors Service assigned a rating of Ba3 to Mary Kay, Inc.'s total $420 million senior secured bank credit facilities. Moody's also assigned Mary Kay a senior implied rating of Ba3 and a senior unsecured issuer rating of B1. The rating outlook is stable. The following specific ratings were assigned:

$100 million guaranteed senior secured revolving credit facility due 2006, assigned Ba3;

$265 million guaranteed senior secured term loan B due 2007, assigned Ba3;

$55 million guaranteed senior secured asset sale term loan due 2003, assigned Ba3;

Senior Implied, assigned Ba3;

Senior Unsecured Issuer, assigned B1.

Mary Kay's ratings reflect the company's leading market position, and well-placed pricing strategy at the low-end of the prestige market; its powerful brand name recognition; its diverse and loyal customer and independent consultant base; and its proven and durable business model, which has resulted in a relatively steady operating performance in the company's domestic operations. The ratings are also supported by the return of the company's co-Founder, Richard Rogers (son of Mary Kay Ash), to manage the operating company, and by the expected liquidation of Mary Kay's investment subsidiaries. Moody's believes that these events will increase the company's focus on growing its core personal care products business and improving the profitability of its international operations.

The ratings are restrained by Mary Kay's increasing cashflow requirements from deferred compensation agreements and term loan amortizations. Moody's also notes that while debt leverage is relatively low, Mary Kay has accrued a significant amount of other liabilities which effectively increase leverage. The company's cashflow requirements heighten its dependence on growing its consultant base and consistently implementing merchandising and salesforce initiatives that sustain the interest of existing and prospective consultants, while meeting the company's productivity and profitability targets. Mary Kay is also increasingly reliant on a limited number of profitable operations outside the U.S., whose performance is subject to global economic and political volatility.

The stable ratings outlook anticipates that Mary Kay will maintain increases in its consultant base and operating performance through the continued execution of appropriate and innovative merchandising, Internet and salesforce initiatives. Combined with the liquidation of non-core investment assets, these initiatives should allow the company to service its debt and reduce other long-term liabilities. Further, these actions should allow for meaningful cost savings and more streamlined operating efficiencies in the near to medium term. Nonetheless, the effectiveness of these improvements may be offset by volatility in international markets, by one-time costs in implementing these strategies, and by possible delays in the realization of these efficiencies and cost savings.

Mary Kay, Inc., is a worldwide manufacturer and direct marketer of skin care products, cosmetics and fragrances, with headquarters in Dallas, Texas.

New York
Michael Rowan
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Russell S. Gorman
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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