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Rating Action:

Moody's assigns first time B2 CFR rating to The Topps Company, Inc.; outlook is stable

Global Credit Research - 11 Sep 2013

New York, September 11, 2013 -- Moody's Investors Service today assigned a B2 first time corporate family rating (CFR) to The Topps Company, Inc. ("Topps"), a B3-PD probability of default rating and assigned B1 (LGD2, 29%) ratings to its proposed $150 million 1st lien term loan and $25 million revolving credit facility. The proceeds will be used to refinance existing debt and for general corporate purposes. The outlook is stable. This is a first time rating assignment.

Ratings Rationale

The B2 corporate family rating reflects Topps' good geographical diversification, leading position in the sports card market and stable results from its confectionery business. It also reflects the company's positive free cash flow, very good liquidity, modest segment diversification, and moderate credit metrics for a speculative grade issuer. Moody's expects leverage (Debt to EBITDA calculated using Moody's standard accounting adjustments) to fall from its current level in the mid five times range pro forma for the transaction to the low-to mid- four times range and that RCF to net debt will approach 20% in the next twelve-to-eighteen months. These positives are offset by the Topps's small scale, niche market orientation in segments with more limited growth opportunities, low margins, private equity ownership and volatility that is inherent in the sports and entertainment cards industry in which sales are often tied to the release of new product lines, seasons or tournaments.

Moody's stable outlook reflects its expectation that Topps will maintain positive free cash flow and will use its free cash flow to start paying down debt over the next twelve-to-eighteen months. The stable outlook also reflects the company's dominant share of the Major League Baseball (MLB) card market in which Topps has an exclusive license to produce MLB cards until 2020, as well as its exclusive contracts with a number of other global sports franchises. Moody's anticipates that sales will grow in the last two quarters of the year after experiencing a year over year decline in the first quarter following the cycling out of increased revenue in Europe related to the Euro Cup 2012 Soccer Championship.

The company's very good liquidity is supported by its positive free cash flow, modest capital requirements, ample covenant cushion, its proposed $25 million revolving credit facility that we expect will remain undrawn and the company's lack of near term debt maturities. However, despite the numerous positives, Moody's notes that the inherent volatility in the sports and entertainment cards industry could weaken the company's liquidity. The new term loan will require Topps to maintain a 4.75 times first lien net leverage ratio. Moody's expects that Topps will have nearly a 30% cushion under the first lien net leverage ratio test initially and that the cushion will increase over time.

The following ratings were assigned:

Corporate family rating at B2

Probability of default rating at B3-PD

Rating on proposed secured term loan at B1, LGD-2, 29%

Rating on proposed senior secured revolving credit facility at B1, LGD-2, 29%

The rating could be upgraded if the company demonstrates that it can grow the business and sustain positive free cash flows despite some underlying volatility in the business, while lowering leverage over time. Quantitatively, debt to EBITDA sustained below 3.5 times, RCF to net debt sustained above 20% and EBIT to interest above 3.5 times (all calculated using Moody's standard adjustments) could lead to an upgrade.

The rating could be downgraded should the company encounter sustained operating difficulties that cause leverage to approach six times, or EBIT margins to be sustained below 5% or if there is a large debt funded acquisition or shareholder distribution.

The principal methodology used in this rating was the Global Packaged Goods Industry Methodology published in June 2013. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Founded in 1938, The Topps Company, Inc., which is co-owned by Madison Dearborn Partners (75%) and The Tornante Company (25%), is the preeminent manufacturer and brand marketer of sports cards, entertainment products and distinctive kids confectionery.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Linda J Montag
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns first time B2 CFR rating to The Topps Company, Inc.; outlook is stable
No Related Data.
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