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I AGREE
29 May 2014
New York, May 29, 2014 -- Moody's Investors Service (Moody's) assigned a B1 rating to Cedar
Fair, L.P.'s (Cedar Fair) proposed $450 million
senior unsecured notes due 2024. The Ba3 Corporate Family Rating
(CFR) and all other debt ratings are unchanged as is the stable outlook.
Cedar Fair plans to use the proceeds to refinance its existing 9.125%
senior unsecured notes due 2018 and pay redemption premiums, accrued
interest, and transaction expenses. The proposed offering
increases debt by $45 million but is expected to lead to interest
expense savings of approximately $10 to $15 million annually.
Moody's anticipates that some of the interest expense savings will
be distributed to unit holders over time through higher distributions.
The existing B1 rating on the 9.125% senior unsecured note
will be withdrawn upon repayment.
A summary of Moody's ratings are as follows:
..Issuer: Cedar Fair, L.P.
....$450 million proposed Senior Unsecured
notes due 2024, Assigned a B1, LGD5 - 74%
....Corporate Family Rating, Unchanged
at Ba3
....Probability of Default Rating, Unchanged
Ba3-PD
....Senior Secured Bank Credit Facility,
Unchanged at Ba1 (LGD2-18%) updated from (LGD2-19%)
.$500 million Senior Unsecured notes due 2021,
Unchanged at B1, (LGD5-74%) updated from (LGD5-75%)
Outlook, stable
RATINGS RATIONALE
Cedar Fair's Ba3 CFR reflects good operating cash flow, a strong
EBITDA margin generated from its portfolio of regional amusement parks,
moderate leverage, Master Limited Partnership (MLP) distribution
payout, and exposure to discretionary consumer spending.
Also included in the rating is the seasonality of the company with the
vast majority of business occurring between Memorial Day and Labor Day
each year which increases sensitivity to weather conditions or any disruptions
to performance. Operations and substantial attendance (23.5
million in 2013) are supported by experienced park management teams and
high entry barriers. Sizable re-investment is necessary
to maintain a competitive service offering as attendance is exposed to
competition from a wide variety of other leisure and entertainment activities
as well as cyclical discretionary consumer spending. Debt-to-EBITDA
leverage (4.1x as of Q1 2014 incorporating Moody's standard adjustments)
is moderate, and has declined from 5.2x in 2009. Moody's
projects debt-to-EBITDA leverage to decrease to about 3.7x
in 2014 from EBITDA growth. However, distributions to unit
holders under the MLP structure (Cedar Fair previously announced it is
increasing its annual per unit distribution to $2.80 from
$2.50) consume the majority of cash flow and are aggressive.
Moody's believes management's target of sustaining debt-to-EBITDA
leverage at less than 4x (excluding Moody's standard adjustments) is designed
to provide flexibility to support the distribution in a range of economic
environments.
Cedar Fair's SGL-2 speculative-grade liquidity rating reflects
its good liquidity position over the next 12 months supported by modest
projected free cash flow (after distributions) and good covenant headroom.
Moody's projects Cedar Fair will generate roughly $30 million
of free cash flow over the next year (after interest, $145
million of capital expenditures, and $156 million in distributions).
This factors in Cedar Fair's plan for incremental capital spending in
2014 in addition to its normal capital spending level (targeted at a 9%
of net revenue range).
Cedar Fair is reliant on its $255 million revolvers (expires February
2018) to cover seasonal cash needs. The cash balance as of Q1 2014
is $9 million and the revolver has $55 million drawn with
$16 million of letters of credit outstanding. The maximum
amount the revolver was drawn in 2013 was $123 million although
Moody's anticipates it will be below that level in 2014 and 2015
given the improved performance of the company. Moody's projects
Cedar Fair will maintain about $150 million of unused capacity
under its revolvers around the peak in seasonal cash needs in April-May.
The stable rating outlook incorporates Moody's expectation of low
to mid single digit revenue growth and mid single digit EBITDA growth
as well as our view that Cedar Fair will maintain a good liquidity position
and continue to generate meaningful cash flow. We expect material
distributions to equity holders to continue to rise based on earnings
growth. Despite Moody's expectation for debt to remain constant
in 2014, we expect EBITDA growth to lead to debt-to-EBITDA
levels at 3.7x by the end of 2014.
The MLP structure and likelihood that management will direct 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. EBITDA less capex-to-interest above
3.0x and CFO less capex-to-debt sustained above 10%
would also be required for an upgrade. Performance ahead of plan
by itself will not likely warrant positive rating movement given expectations
that a majority of excess cash flow after capital expenditures and required
debt service would benefit unit holders through increased distributions,
rather than creditors.
Weak operating performance, debt funded equity repurchases,
distributions or acquisitions that led to leverage above 4.5x would
likely put negative pressure on the ratings. CFO less capex-to-debt
to a level below 7% or EBITDA less capex to interest below 2.0x
could also put downward pressure on the ratings. A deterioration
in liquidity due to increasing revolver usage (above seasonal draw downs),
failure to maintain sufficient EBITDA cushion under financial covenants,
or anticipated difficulty addressing maturities could also result in a
downgrade.
Cedar Fair, L.P.'s 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 Cedar Fair, L.P.'s core
industry and believes Cedar Fair, L.P.'s 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 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 11 amusement parks,
three outdoor water parks, one indoor water park, and five
hotels in the U.S. and Canada. Properties include
Cedar Point (OH), Kings Island (OH), Knott's Berry Farm (CA),
and Canada's Wonderland (Toronto). In June 2006, Cedar Fair
acquired Paramount Parks, Inc. (Paramount Parks) from CBS
Corporation for a purchase price of $1.24 billion.
Cedar Fair's revenue for its fiscal year ended December 2013 was approximately
$1.1 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 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 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 rating action, and
whose ratings may change as a result of this 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
Vice President - Senior Analyst
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 C 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 assigns B1 rating to Cedar Fair's proposed $450 million senior unsecured notes
No Related Data.
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