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Rating Action:

Moody's affirms Cedar Fair's existing ratings; outlook remains stable

01 Mar 2019

New York, March 01, 2019 -- Moody's Investors Service (Moody's) affirmed Cedar Fair, L.P.'s (Cedar Fair) Ba3 Corporate Family Rating (CFR), Ba1 senior secured credit facility, and B1 Senior Unsecured rating. The outlook remains stable.

The performance of the company continues to be in line with the existing rating levels with moderate debt leverage levels of 3.7x and EBITDA margins of 35% as of Q4 2018, despite slightly negative free cash flow after distributions in 2018 and 2017.

A summary of Moody's actions are as follows:

Affirmations:

..Issuer: Cedar Fair, L.P.

.... Corporate Family Rating, Affirmed Ba3

.... Probability of Default Rating, Affirmed Ba3-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

....Senior Secured Bank Credit Facility, Affirmed Ba1 (LGD2)

....Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD5)

..Issuer: Canada's Wonderland Company

....Senior Secured Bank Credit Facility, Affirmed Ba1 (LGD2)

Outlook Actions:

..Issuer: Canada's Wonderland Company

....Outlook, Remains Stable

..Issuer: Cedar Fair, L.P.

....Outlook, Remains Stable

RATINGS RATIONALE

Cedar Fair's Ba3 CFR reflects its portfolio of regional amusement parks, moderate leverage, and good EBITDA margins. The parks have substantial attendance (25.9 million in 2018) and are supported by experienced park management teams with high entry barriers. Sizable reinvestment is necessary to maintain a competitive service offering as attendance is exposed to competition from an increasingly wide variety of other leisure and entertainment activities as well as cyclical discretionary consumer spending. Results are also highly seasonal and sensitive to weather conditions. Debt-to-EBITDA leverage of 3.7X as of FY 2018 (including Moody's standard adjustments) is moderate, and has declined from 5.2x in 2009. However, distributions to unit holders under the MLP structure (the annual per unit distribution was increased to $3.70 from $3.56 in Q4 2018) are substantial and led to slightly negative free cash flow during the last two years. Negative free cash flow after distributions offset the low leverage level for the current rating and restrain upward rating pressure.

The stable rating outlook incorporates our expectation of low to mid-single digit revenue and EBITDA growth if weather conditions are favorable and that Cedar Fair will maintain a good liquidity position. We also project that cash flow will be directed to distributions to equity holders which will continue to rise over time.

Cedar Fair's SGL-2 speculative-grade liquidity rating reflects its good liquidity position over the next 12 months supported by material covenant headroom, a $275 million revolver due April 2022 that is undrawn ($15 million of L/C's outstanding) and a cash balance of $105 million as of Q4 2018 which is down from $166 million at the end of 2017. Free cash flow after distributions was modestly negative in 2018 & 2017 and we project free cash flow in 2019 will be approximately neutral (after interest expense of $85 million, $45 million of cash taxes, $170 to $180 million of capital expenditures, and approximately $209 million in distributions). The EBITDA to interest coverage ratio is 5.2x as Q4 2018 and expected to improve slightly in 2019.

Cedar Fair is reliant on its $275 million revolver for seasonal borrowings. The maximum amount drawn on the revolver in 2018 was $60 million in 2018, down from $110 million in 2017 and $101 million in 2016. We project Cedar Fair will maintain over $150 million of unused capacity under its revolvers around the peak in seasonal cash needs in April and May. We expect Cedar Fair will maintain an EBITDA cushion of more than 30% based on our revenue/EBITDA growth assumptions. The maximum debt to EBITDA covenant is 5.5x for the life of the loan. The revolver is not subject to a clean down provision. We anticipate the company would reduce its distribution levels or cut growth capex in a dire scenario which would provide additional liquidity. The $450 million senior unsecured note due 2024 becomes callable in June 2019 at 102.688.

The MLP structure and likelihood that management will direct excess cash to unit holders over time constrains the ratings. A debt-to-EBITDA ratio below 3.5x on a sustained basis could lead to an upgrade if the board of directors demonstrated a commitment to maintaining leverage below that level. An EBITDA to interest ratio above 4.5x would also be required for an upgrade as would a positive free cash flow to debt ratio after distributions of over 5% with a good liquidity position.

Weak operating performance, debt funded equity repurchases, distributions or acquisitions that led to leverage above 4.5x on an ongoing basis would put negative pressure on the ratings. An EBITDA to interest ratio below 3x, continued negative free cash flow that led to a deterioration in its liquidity position, or failure to maintain a sufficient EBITDA cushion under financial covenants would also lead to negative rating pressure.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Cedar Fair, L.P. (Cedar Fair), headquartered in Sandusky, Ohio, is a publicly traded Delaware master limited partnership (MLP) formed in 1987 that owns and operates eleven amusement parks, two outdoor water parks, one indoor water park, and four hotels in the U.S. and Canada. Properties include Cedar Point (OH), Knott's Berry Farm (CA), Kings Island (OH), and Canada's Wonderland (Toronto). In June 2006, Cedar Fair acquired Paramount Parks, Inc. from CBS Corporation for a purchase price of $1.24 billion. Cedar Fair's revenue for its fiscal year ended December 2018 was approximately $1.3 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Scott Van den Bosch
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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