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Rating Action:

Moody's affirms Vail Resorts' Ba3 CFR following convertible notes issuance

15 Dec 2020

New York, December 15, 2020 -- Moody's Investors Service, ("Moody's") affirmed ratings for Vail Resorts, Inc. (Vail) including its Ba3 Corporate Family Rating (CFR) and Ba3-PD Probability of Default Rating following the company's launch of the proposed $500 million convertible notes (unrated) offering. Moody's took no action on the Speculative Grade Liquidity rating of SGL-1. Concurrently Moody's upgraded the rating for the company's existing $600 million senior unsecured notes due 2025 to B1 from B2. The outlook remains stable.

Proceeds from the $500 million convertible notes will be used to increase cash on hand and for general corporate purposes.

Moody's expects Vail's gross debt-to-EBITDA leverage will remain at above 6.0x in FYE July 2021 as the 2020-2021 ski season will be challenging due to social distancing measures and capacity constraints as the result of the ongoing coronavirus pandemic. There is also the possibility of shutdowns in certain locations if the coronavirus situation continues to worsen this winter. Strong season pass sales for FY2021 in part reflect reservation policies established to control facility utilization, but also indicate healthy underlying demand for winter sports activities. A higher mix of visitation by season pass holders will limit availability for higher-priced daily ticket sales that will reduce lift revenue, while other mountain revenues such as from restaurants, rentals and lessons will be also be down meaningfully in FY 2021.

Moody's affirmed the ratings because looking past FY 2021, Moody's expects debt-to-EBITDA leverage will decline to below 5.0x with the assumption that earnings will recover in FY 2022 when capacity restrictions are eased. With the proposed $500 million convertible notes offering on top of the $600 million term loan issued in April, Vail's very good liquidity with over $1.7 billion of total pro forma cash and unused revolver capacity will be beneficial to manage through the uncertain operating environment in FY2021, which is also an important factor in the affirmation of ratings.

The upgrade of the rating for Vail's existing $600 million senior unsecured notes due 2025 to B1 from B2 is due to the additional loss absorption cushion provided by the issuance of the subordinated debt, which reduces the loss given default estimate for the 2025 notes. The additional liquidity provided by the $500 million convertible notes will also be available for reinvestment in earnings-enhancing projects and acquisitions once the economic downturn and coronavirus eases and this would increase the asset base and recovery potential for more senior creditors.

Moody's took the following actions:

Ratings Affirmed:

..Issuer: Vail Resorts, Inc.

.... Corporate Family Rating, Affirmed at Ba3

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

Ratings Upgraded:

..Issuer: Vail Resorts, Inc.

.... Senior Unsecured Regular Bond/Debenture (Local Currency), upgraded to B1 (LGD5) from B2 (LGD5)

Outlook Actions:

..Issuer: Vail Resorts, Inc.

....Outlook, Remain Stable

RATINGS RATIONALE

Vail's Ba3 CFR reflects its elevated financial leverage with Moody's adjusted debt-to-EBITDA remaining at above 6.0x throughout FY2021 pro forma for the proposed convertible not offering. Moody's expects the upcoming 2020-2021 ski season to remain challenging given the ongoing coronavirus pandemic and expect earnings to decline meaningfully vs FY2020. Moody's expects skier visits, effective ticket prices and ancillary revenue to be below normal levels given social distancing measures and capacity constraints. Looking past FY21 and over the next 18 months, Moody's projects debt-to-EBITDA leverage to decline to below 5.0x with earnings recovering in FY22. Moody's estimates that Vail's EBITDA will decline by approximately 10% in FY 2021 vs FY2020 and rebound by roughly 40% in FY 2022. The rating is constrained by Vail's operating results which are highly seasonal and exposed to varying weather conditions and discretionary consumer spending. Governance factors primarily relate to the company's aggressive acquisition strategy with acquisitions funded mainly with incremental debt. Environmental considerations in addition to exposure to adverse weather include the need to access large quantities of water, which may be challenging following periods of severe drought, and the vast amounts of forest land the company is responsible to properly operate and protect.

However, the rating is supported by Vail's leading position in the North American ski resorts industry with a very strong portfolio of ski resorts, including some premier ski destinations that attract high income consumers and can command higher prices relative to peers. Vail benefits from its good geographic diversification and higher local skier customer mix. Vail's high and growing penetration of its Epic Pass provides a stable revenue stream that helps mitigate weather exposure. The North American ski industry has high barriers to entry and has exhibited resiliency even during weak economic periods, including the 2007-2009 recession.

Vail's SGL-1 speculative-grade liquidity rating reflects the company's very good liquidity bolstered by the material $1.1 billion of cash as of November 30, 2020 (pro forma for the offering), and almost $600 million of combined unused capacity on its subsidiaries' revolver credit facilities. The company's amendment to its credit agreement in April eliminated financial maintenance covenants through January 31, 2022 and requires a $150 million minimum liquidity through the same period. In conjunction with the proposed convertible notes offering, a planned amendment to the credit agreement covenants would increase the minimum liquidity test to $300 million. Moody's expects the company to have strong cushion within the covenant. These liquidity characteristics provide financial flexibility to fund operations and required debt service over the next 12-to-18 months. Moody's projects free cash flow will continue to be highly seasonal but break even overall for the next 12 months.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of Vail from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. More specifically, the weaknesses in Vail's credit profile, including its exposure to mandated stay at home orders, increased social distancing measures and discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the ongoing coronavirus pandemic and social distancing measures.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable outlook reflects Moody's expectation that debt-to-EBITDA leverage will decline to below 5.0x by the end of FY22 (July 2022) with anticipated earnings recovery. The stable outlook also reflects the company's very good liquidity, which will allow the company to fund its operations and required debt amortization over the next 12 to 18 months.

The ratings could be upgraded if operating performance improves with Moody's adjusted debt-to-EBITDA sustained below 4.0x and the company maintains very good liquidity.

The ratings could be downgraded should operating performance be weaker than expected or fail to rebound as anticipated. Moody's adjusted debt-to-EBITDA sustained above 5.0x or a weakening of liquidity could also prompt a downgrade.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Vail Resorts, Inc. is a leading operator of mountain resorts and regional ski areas, operating 37 mountain resorts, with 33 in the US, 1 in Canada, and 3 in Australia. The company is publicly traded (NYSE: MTN) and reported revenue of approximately $1.8 billion for the twelve months period ending October 31, 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Joanna O'Brien
Asst Vice President - Analyst
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 E. Puchalla, CFA
Associate Managing Director
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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