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Moody's reviews Hasbro rating for downgrade over $4B deal Entertainment One deal

Moody's on Aug. 23 placed Hasbro Inc.'s Baa1 senior unsecured rating and Prime-2 short-term rating under review for downgrade, following the U.S. toymaker's proposal to acquire U.K.-listed Entertainment One Ltd. for approximately $4 billion in cash.

The outlook is Rating Under Review.

Hasbro, which makes Play-Doh and My Little Pony toys, is planning to fund the deal with the proceeds of its debt financing and approximately $1 billion to $1.25 billion in cash from equity financing.

Since the transaction is partly debt-funded, the rating agency expects that upon deal closing, Hasbro's senior unsecured rating would be downgraded by one to two notches.

According to the agency, Hasbro's current rating reflects its solid market position, strong brands, broad and growing geographic diversification, and conservative capital structure. It also shows the company's adaptation to children's changing play patterns.

Under the review, Moody's will assess the Canadian company's fit at Hasbro, with the financial policy and the company's deleveraging plans being a "key consideration."

The agency will evaluate the amount and timing of synergies and the ability to retain key talent at Entertainment One, as well as the final funding strategy and resulting credit metrics. It will also take into account Hasbro's liquidity, which according to the agency, has been very strong recently.

The deal will be leveraging for the toymaker, with closing debt to EBITDA leverage in the high 4x range versus its typical 2x to 2.5x range, the agency added. Moody's has previously said debt to EBITDA above 2.5x could lead to a downgrade.

S&P Global Ratings also placed the company on CreditWatch with negative implications following the acquisition announcement.

Similarly, Fitch Ratings placed Hasbro on Negative Watch, saying the planned acquisition would materially increase Hasbro's leverage profile.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.