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Mattel eyes debt raise after Mega Brands buyout

By Danielle Robinson

NEW YORK, Feb 28 (IFR) - Mattel said Friday it will come to the US debt market in the second quarter after announcing its US$460m acquisition of Canada's Mega Brands to help compete with Danish rival Lego.

Mattel told analysts it would pay for the acquisition with cash on hand, but then go to the debt market to raise US$500m.

"We expect the deal to be funded with cash, and it is slated to close in the second quarter of 2014," said Mattel CFO Kevin Farr.

"We expect to issue additional debt of about $500 million for general corporate purposes early in the second quarter, which should get us close to our targeted debt to total capital ratio of about 35% at year-end 2014."

Analysts at Morningstar said the additional debt would increase pro-forma leverage to around 2x earnings before EBITDA, from a current 1.7x.

A-minus rated Mattel rarely comes to the bond market, which should mean strong demand from investors.

It last tapped the market in March 2013 for US$250m of 3.15% 10-year notes maturing in 2023 and US$250m of 1.7% five-years.

The 2023s were trading on MarketAxess today at T+140bp or a G-spread of 137bp.

Demand for Lego blocks has been growing at the expense of action figures and preschool toys, with Lego sales up 10% in a sluggish global toy market last year, Reuters reported.

"Mattel currently has less than a 1% share in the (construction toy) category," Mattel CEO Bryan Stockton told analysts on the call.

"This is the single largest toy category where Mattel does not play."