Approximately $1.7 billion of debt instruments affected
New York, March 13, 2012 -- Moody's Investors Service downgraded SeaWorld Parks and Entertainment,
Inc.'s (SeaWorld Parks) Corporate Family Rating (CFR) and
Probability of Default Rating (PDR) to B1 from Ba3 and its senior secured
credit facility rating to Ba3 from Ba2. The downgrade follows the
company's announcement that it plans to fund a $500 million
dividend to its equity sponsors, led by the The Blackstone Group,
from the proceeds of a $500 million add-on to its existing
term loan B. The downgrade reflects the meaningful increase in
leverage resulting from the transaction, increase in refinancing
risk in 2016/2017, and future event risk related to use of cash
flow and leverage by equity sponsor Blackstone. Moody's also
assigned a Ba3 rating to the $500 million term loan B add-on
and updated the loss given default assessments to reflect the revised
debt mix. The rating outlook is stable.
Downgrades:
..Issuer: SeaWorld Parks & Entertainment,
Inc.
....Corporate Family Rating, Downgraded
to B1 from Ba3
....Probability of Default Rating, Downgraded
to B1 from Ba3
....Senior Secured Bank Credit Facility,
Downgraded to Ba3, LGD3 - 40% from Ba2, LGD3
- 36%
Assignments:
..Issuer: SeaWorld Parks & Entertainment,
Inc.
....Senior Secured Bank Credit Facility (Term
Loan B), Assigned Ba3, LGD3 - 40% (increased
to $1.34 billion from $844 million)
RATINGS RATIONALE
The significant size of the proposed distribution following a $100
million cash distribution to Blackstone in 2011's third quarter,
and the relatively limited amount of debt reduction since Blackstone's
December 2009 leveraged buyout of SeaWorld Parks' reflect an aggressive
use of cash and debt. Moody's already considered the potential
for cash distributions to equity holders to be high, but the magnitude
of the distributions and the resulting higher leverage profile over the
next several years are above the levels factored into the prior CFR.
The maturity date for the add-on is the same as the existing term
loan B (August 17, 2017), and this further increases the refinancing
risk associated with all of SeaWorld Parks' debt maturing in 2016
and 2017.
Moody's projects SeaWorld Parks will continue to generate meaningful
free cash flow and the net increase in cash interest expense, factoring
in the approximate $10 million proposed reduction in the annual
interest expense on the mezzanine notes, is modest and manageable.
Moody's expects the company will continue to utilize the bulk of
its free cash flow for equity holder distributions and acquisitions,
with debt reduction likely limited to required term loan amortization,
an excess cash flow sweep and potentially modest discretionary pay downs.
SeaWorld Parks' B1 CFR reflects the strong brands and consumer appeal
of its portfolio of 10 regional and destination amusement parks,
tempered by exposure to cyclical discretionary consumer spending,
high debt-to-EBITDA leverage resulting from the 2009 LBO
and proposed dividend distribution, and ongoing risks related to
cash distributions or leveraging actions by equity sponsor Blackstone.
The parks generate meaningful annual attendance (approximately 23.6
million in 2011) and benefit from high entry barriers and distinct advantages
due to the differentiated animal encounters, mix of entertainment
and rides, and broad demographic appeal. Amusement parks
are capital intensive but Moody's anticipates SeaWorld will continue
its good track record of reinvesting in the parks to compete for consumers
with a wide range of entertainment alternatives, maintain the attendance
base and generate free cash flow. Attendance at the parks is seasonal
and vulnerable to weather, changes in fuel prices, public
health issues and other disruptions that are outside of the company's
control. A good liquidity position and cash flow generation provide
flexibility to fund a significant ongoing capital program and rollout
of major new rides and attractions in 2012/2013.
The stable rating outlook reflects Moody's expectation the increased and
sizable level of reinvestment since the LBO should support continued growth
in attendance, revenue and EBITDA over the next 12-24 months.
Based on this forecast and required debt repayment, Moody's projects
debt-to-EBITDA leverage (estimated 5.5x for fiscal
year 2011 incorporating Moody's standard adjustments and pro forma
for the proposed transaction) will decline to approximately 5x over the
next 12-24 months.
Upward rating movement is unlikely due to event risks related to equity
sponsor ownership. However, an upgrade could be considered
if SeaWorld Parks demonstrates the willingness and ability to sustain
debt-to-EBITDA leverage comfortably below 4.5x (after
factoring in projected future shareholder distributions and other event
risks), maintains a good liquidity profile, and generates
solid and growing cash flow with good park reinvestment.
Downward rating pressure could occur if cash distributions to shareholders,
acquisitions or declines in attendance and earnings driven by competition,
insufficient or ineffective investments or a prolonged economic downturn
result in debt-to-EBITDA above 5.75x. A significant
increase in interest rates, a deterioration in liquidity,
more aggressive financial policies, or if Moody's anticipates
the company will have difficulty refinancing its 2016-2017 maturities
are also factors that could result in a downgrade.
Please see the ratings tab on SeaWorld Parks' issuer page on www.Moodys.com
for the last credit rating action and rating history. Please see
SeaWorld Parks' credit opinion on www.Moodys.com for
additional information on the company's ratings.
SeaWorld Parks' ratings were assigned by evaluating factors that
Moody's considers relevant to the credit profile of the issuer,
such as the company's (i) business risk and competitive position compared
with others within the industry; (ii) capital structure and financial
risk; (iii) projected performance over the near to intermediate term;
and (iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
SeaWorld Parks' core industry and believes SeaWorld Parks'
ratings are comparable to those of other issuers with similar credit risk.
Other methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
SeaWorld Parks, headquartered in Orlando, Florida, owns
and operates ten amusement parks located in the U.S. Properties
include SeaWorld (Orlando, San Diego and San Antonio), Busch
Gardens (Tampa and Williamsburg) and Sesame Place (Langhorne, PA).
The Blackstone Group (Blackstone) acquired SeaWorld in December 2009 in
a $2.4 billion (including fees) leveraged buyout.
SeaWorld Parks' LTM 9/30/11 revenue was approximately $1.3
billion.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades SeaWorld Parks (CFR to B1) on dividend recapitalization
