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Fitch downgrades Mattel on weak sales

Fitch Ratings on July 31 downgraded the long-term issuer default rating, or IDR, of Mattel Inc. to BBB from BBB+, a few days after S&P Global Ratings also lowered the corporate credit ratings of the toymaker.

Fitch also downgraded the company's unsecured revolving credit facility and senior unsecured notes to BBB from BBB+. The rating agency affirmed the toymaker's short-term IDR and commercial paper program at F2.

The outlook is negative.

Fitch attributed the ratings downgrade to concerns that the toymaker's recent decline in sales and margins will continue and will make it difficult for the company to return to leverage levels in the lower 2x range in the medium term. The combination of declining sales and margins with rising working capital usage led to higher-than-forecast debt levels for the company.

The agency said it expects Mattel's revenue to decline due to a difficult retail environment for its core products. The company's EBITDA margins are also expected to contract about 200 basis points to 14.1% in 2017 and the leverage is likely to stay elevated slightly above 3x in 2017.

The ratings outlook can stabilize if there is evidence of low-single digit revenue growth and a slight improvement in margins, Fitch said, but worsening top-line performance, margin contraction or market share losses among other things could lead to a negative ratings action.