Fitch Ratings has downgraded
The rating actions follow the announcement on
Key Rating Drivers
Uncured Missed Interest Payment: Anagram initially skipped an interest payment on its approximately
Fitch views the failure to cure the missed interest payment within the original grace period as a restricted default as per its ratings definitions. The event of default on the first lien notes triggered cross-defaults on Anagram's other debts, including its ABL facility and its second lien notes, and the company has stated it is in active dialogue with the holders of its debt to address the events of default.
Small Scale, Concentrated Customer Base: Anagram's scale is relatively small, with a helium shortage and operating pressures at its main customer (Party City) leading to sales potentially declining to the mid
Operating Challenges in 2023: A global helium shortage has reduced demand for Anagram's products since 2022, leading to declining sales and profitability. Anagram's EBITDA margins could be in the low double-digit range in 2023 relative to the 20% range in 2020 and 2021, before improving to the mid to high teen range in 2024 and beyond, in line with improving helium supply, which could support increased demand. Fitch projects Anagram could generate negative FCF in 2023 driven primarily by the decline in EBITDA, and the company will likely need to rely on the limited capacity on its
High Leverage and Growing Refinancing Risk: Fitch expects Anagram's EBITDA leverage could be around 15x in 2023 due to a continued decline in EBITDA (from 2022 levels in the
Parent Company in Bankruptcy: While a parent/subsidiary relationship exists between Anagram and Party City, Anagram's IDR is mainly based on its standalone credit profile. The analytical overlay section of Fitch's criteria allows for wider notching between parent and subsidiary during extreme situations such as when a parent is in bankruptcy and the subsidiary continues to operate outside of bankruptcy.
Derivation Summary
Anagram's 'RD ratings reflect the company's failure to cure its missed interest payment after the expiry of the original 30-day cure period/forbearance agreement following the non-payment of interest on its approximately
Anagram's ongoing credit profile reflects continued business pressure, high leverage and growing refinancing risk, with its ABL revolver maturing in
Anagram's rating compares with peer
Key Assumptions
Fitch expects revenue declines in the high-teen to mid-to-low 20% range in 2023 toward the mid-$100 million range, with inflationary pressures and high helium prices and shortages driving the decline in demand. Fitch expects Anagram's revenue could grow in the high single digit to low double-digit range in 2024 and thereafter driven by improving helium supply;
Fitch expects EBITDA margins decline to the low double-digit range in 2023 as a result of higher costs and declining demand, from around 16% in 2022. Margins could improve to the mid to high teen range in 2024 and thereafter driven by top line growth and improving input and supply chain costs;
Fitch expects FCF could be negative in 2023, driven primarily by the decline in EBITDA. In 2024, FCF could be break-even, driven by improving EBITDA.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a positive rating action/upgrade:
Fitch will reassess the company's credit profile if there is a successful resolution to the current restricted default.
Factors that could, individually or collectively, lead to a negative rating action/downgrade:
The IDR will be downgraded to 'D' if a bankruptcy or restructuring occurs.
Liquidity and Debt Structure
Limited Liquidity: Anagram's liquidity is comprised of cash on hand, after the uncured missed interest payment on its first lien notes led to an event of default on under its ABL credit agreement (
Fitch's recovery analysis for Anagram is based on a going concern value of approximately
The
After deducting 10% for administrative claims, the remaining
Issuer Profile
Anagram is a leader in the design and manufacturing of balloons and party products.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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