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27 Sep 2005
MOODY'S PLACES AMSCAN'S RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE
Approximately $430 Million of Rated Debt Facilities Affected.
New York, September 27, 2005 -- Moody's Investors Service placed the ratings of Amscan Holdings,
Inc. ("Amscan") on review for possible downgrade following the
announcement that AAH Holdings Corporation ("AAH"),
Amscan's parent, has agreed to acquire Party City Corporation
("Party City") for cash consideration of approximately $360
million. The rating action reflects the integration and execution
challenges in combining Amscan with its largest customer, the potential
for further leveraging, and current industry conditions, which
could weaken Amscan's financial condition beyond levels appropriate
for the current ratings.
The following ratings were placed under review for possible downgrade:
Corporate family rating (formerly senior implied rating), B1;
$50 million senior secured revolving credit facility due 2010,
$205 million senior secured term loan B facility due 2012,
$175 million 8.75% senior subordinated notes due
Earlier today, AAH announced that it has entered into a definitive
agreement to purchase Party City for $17.50 per share,
equating to total cash consideration of around $360 million.
AAH, controlled by Berkshire Partners LLC and Weston Presidio,
is a holding company that, through its Amscan subsidiary,
owns party supplies manufacturer Amscan, Inc.. The
company does not intend to seek consent from bondholders for the transaction.
Party City, through its nearly 500 owned and franchised stores,
is the largest party goods superstore chain and is Amscan's largest
customer (representing approximately 28% of fiscal 2004 sales).
The review action reflects the potential for substantial integration risks
through this business combination, the most important being the
impact on Amscan's relationship with other customers. In
addition, Moody's notes the potential financial risks in the
transaction due to a relatively large purchase price (as a multiple of
Party City's reported earnings), the majority of which Moody's
expects to be debt-financed. These concerns are heightened
by the historical volatility and ongoing challenges for Party City and
the party superstore channel; a difficult macro-economic and
raw materials environment in the party supplies industry; and Amscan's
high pre-acquisition financial leverage of around 6x.
In our review, Moody's will analyze the details of the transaction
structure and the integration plan, with a primary focus on Amscan's
prospective financial flexibility (leverage and free cash flow) and its
ability to allay the industry and execution concerns highlighted above.
Moody's will also evaluate the strategic benefits of the transaction,
including the securing of Amscan's largest customer and potential
synergies in the combination.
Amscan Holdings, Inc., with executive offices in Elmsford,
New York, is a leading manufacturer of party goods and the largest
manufacturer of metallic balloons. The company sells its products
through party superstores, party goods retailers and other retail
distribution channels. Sales for the twelve-month period
ended June 2005 were approximately $404 million.
William L. Hess
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Kevin L. Ziets, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
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.
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