S&P Cuts American Greetings Credit Rating to Junk

NEW YORK -- Standard & Poor's Ratings Services cut American Greetings' (AM Quote) corporate credit rating to junk status, citing its softer-than-expected operating performance, higher leverage and tight covenant cushion.

The ratings agency said late Wednesday that it reduced the greeting card maker's corporate credit rating to BB+ from its prior investment grade rating of BBB-.

S&P also provided recovery ratings for American Greetings' secured and unsecured debt agreements. The Cleveland-based company's $350 million senior secured revolving credit facility due 2011 and a $100 million senior secured loan due 2013 were given a 2 recovery rating, which means lenders anticipate 70% to 90% recovery if there is a payment default. The issue-level ratings for the facilities is still BBB-.

For the company's $200 million senior unsecured notes, S&P cut the issue-level rating further into junk status with a BB- from BB+. The ratings agency also provided a 6 recovery rating for the notes, which implies no recovery to 10% recovery if a default occurs.

American Greetings had reported debt of about $448.6 million as of Nov. 28, 2008, according to S&P.

The company's ratings are still on negative CreditWatch.

On Wednesday Moody's Investors Service lowered its ratings on American Greetings deeper into junk status after the company said it would buy back up to $75 million of its shares.

Last month American Greetings said it would cut 275 jobs, mostly at its Cleveland headquarters, to help lower costs.

During the past 52 weeks, American Greetings' stock has dropped from a high of $21.81 last February to a low of $5.29 on Wednesday.