Mattel Pays Up to Refinance Debt at Tough Time for Toymakers

(Bloomberg) -- Mattel Inc. sold $1 billion of bonds due 2025 with a yield of 6.75 percent as investors demanded the struggling toymaker pay a premium to refinance short-term debt.

While the pricing was at the tighter end of initial talk of up to 7 percent, it’s more than 2 percentage points above the average for similarly rated bonds, according to Bloomberg Barclays indexes. The maker of Barbie dolls and Hot Wheels cars was cut to junk by two major bond-grading firms earlier this week as it began the debt sale.

Mattel, in its first bond offering this year, sold the debt at a difficult time for the toy industry. The company lowered its full-year sales and guidance in October, prompting Chief Executive Officer Margo Georgiadis to increase Mattel’s cost-cutting plan by threefold and suspend its dividend. Fourth-quarter sales could also be hurt by underperforming brands and retailers exerting tighter control over their inventories, Mattel said in a filing Monday.

Ratings Cut

The new bonds will be “critical to the recovery of core brands and its growth in emerging markets,” Bloomberg Intelligence analysts Mariam Sherzad and Michael Halen said in a report Tuesday. “Discontinued products, residual holiday inventory, plummeting sales and higher advertising and interest expenses will pressure 2018 results.”

El Segundo, California-based Mattel didn’t immediately respond to a request for comment on Friday.

The proceeds of the bonds, which can’t be bought back for three years, will refinance debt due next year and repay Mattel’s commercial paper borrowings, the filing said. The company also plans to replace its revolving credit facility with a new $1.6 billion credit line secured by assets including its inventory.

The lower forecasts led Moody’s Investors Service, S&P Global Ratings and Fitch Ratings to downgrade the toymaker on Monday. Moody’s, assigning the second-highest junk rating with a stable outlook, cited the bankruptcy of retailer Toys “R” Us Inc. for Mattel’s drop in sales during the several “critical weeks” at the end of the third quarter ahead of the holiday shopping season. S&P cut the company one level to BB-, three steps below investment grade. Fitch rates it one step higher at BB. Moody’s and Fitch both cut Mattel to junk this week.

Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Mitsubishi UFJ Financial Group Inc., Royal Bank of Canada, Mizuho Financial Group Inc. and HSBC Holdings Plc managed the bond sale, according to a person familiar with the matter, who asked not to be identified because the information is private.

--With assistance from Gowri Gurumurthy and Sridhar Natarajan

To contact the reporter on this story: Molly Smith in New York at msmith604@bloomberg.net.

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Dan Wilchins

©2017 Bloomberg L.P.