Fitch warns on Hasbro

Fitch Ratings lowers its default credit rating on Hasbro (HAS -1.2%) to BBB- and assigns a Negative rating outlook after factoring in the financial implications of the toy company acquiring Entertainment One.

Fitch's Hasbro breakdown: "The transaction is expected to close late in 4Q19 or early 2020, subject to regulatory approval in their Canadian and UK jurisdictions. Assuming $875 million of equity and $3.5 billion of debt to finance the acquisition, pro forma gross debt/EBITDA is approximately 4.7x and is expected to trend to the mid-3x range within 24 months post acquisition close on synergy achievement. Adjusted debt/EBITDAR, capitalizing leases at 8.0x, is approximately 0.2x-0.3x higher than respective gross debt/EBITDA figures. The Negative Outlook reflects concerns that gross debt/EBITDA could be sustained above 3.5x, and therefore ratings could be stabilized with greater confidence that a combination of good organic growth, synergy achievement and debt reduction could yield gross debt/EBITDA below 3.5x, as appropriate for the 'BBB-' rating."

Fitch says the ratings also consider fashion and brand risk inherent in the toy industry, as well as the risks to traditional toymakers' models presented by changing play patterns.