New York, October 01, 2020 -- Moody's Investors Service, ("Moody's") assigned a B3
rating to Cedar Fair, L.P.'s (Cedar Fair) proposed
$300 million senior note. All other ratings, including
the B2 Corporate Family Rating (CFR), Ba2 senior secured note and
credit facility ratings, and B3 rating on the existing senior notes,
remain unchanged. The outlook remains negative.
The net proceeds of the proposed $300 million senior notes due
2028 will be used to add cash to the balance sheet and further enhance
Cedar Fair's liquidity position. Cedar Fair is expected to
have approximately $870 million of liquidity pro forma for the
transaction including over $500 million of cash and $359
million of revolver availability as of September 27th, 2020.
Moody's expects Cedar Fair to have adequate liquidity to manage
through the pandemic, but the transaction will result in the already
very high leverage levels to increase further (13.2x pro forma
for the transaction as of Q2 2020 including Moody's standard adjustments)
and interest expense to rise. Cedar Fair also recently extended
the maturity date for part of the $375 million revolver to December
2023 from April 2022 and completed an amendment to extend out the covenant
suspension period until the end of 2021.
A summary of Moody's actions are as follows:
Assignments:
..Issuer: Cedar Fair, L.P.
....$300 million Senior notes due 2028,
assigned B3 (LGD5)
RATINGS RATIONALE
Cedar Fair's B2 CFR reflects the negative impact of the coronavirus
outbreak on the ability to operate its parks, which Moody's projects
will lead to higher leverage and negative free cash flow until the summer
operating season in 2022. In the near term, EBITDA is expected
to be negative and cash burn is expected to be $30 to $40
million a month as only 7 of Cedar Fair's 15 parks opened during
the summer season. Parks that were able to open, operated
at limited capacity due to health regulations and the need to maintain
social distancing. The pace of recovery may be slow as some consumers
may be reluctant to participate in group events and season pass sales
may take time to recover given the disruption in the park operating schedule.
Cedar Fair benefits from its typically sizable attendance (27.9
million in 2019) and revenue generated from a geographically diversified
regional amusement park portfolio. EBITDA margins and operating
cash flows historically have been good, and its parks have high
barriers to entry. Cedar Fair's large portfolio of regional amusement
parks in the US and Canada are less likely to be impacted by reduced travel
activity as the vast majority of guests are within driving distance of
the parks. Cedar Fair owns the land under all but one of its parks
which is a material positive. While recovery to prior levels may
not occur until 2022 or 2023, Moody's expects the positive
attributes of the parks to support an improvement in performance over
time in line with historical levels.
A governance impact that Moody's considers in Cedar Fair's credit profile
is the change in financial policy. Cedar Fair previously pursued
an aggressive financial plan that led to substantial dividend payments
and minimal or negative free cash flow, but Moody's expects the
company will operate with a more moderate financial policy with the goal
to reduce leverage after the impact of the coronavirus subsides.
Cedar Fair is an MLP and is a publicly traded company listed on the New
York Stock Exchange.
Cedar Fair' speculative grade liquidity rating of SGL-3 reflects
the potential for sizable negative free cash flow in the near term.
Cedar Fair will have over $500 million of cash and full access
to the $375 million revolving credit facility ($16 million
of L/Cs outstanding) as of September 27, 2020. Cedar Fair
extended $300 million of its revolver maturity to December 2023
and the remaining $75 million will mature in April 2022.
Moody's projects Cedar Fair to have just over 2 years of liquidity
at the midpoint of the $30 to $40 million a month cash burn
rate, but the cash usage rate will improve in 2021 as additional
parks are allowed to open and operate and with higher capacity levels.
However, Moody's does not expect free cash flow to turn positive
until the summer operating season of 2022. Cedar Fair traditionally
spent material amounts on capex each year ($180 million spent in
2019, excluding the purchase of the land at its park in Santa Clara
for $150 million), but the company is expected to reduce
capex by $75 to $100 million in 2020 in response to the
pandemic. The significant historical capex on rides, attractions,
and lodging reduces the need for spending in the near term. The
dividend was also suspended to preserve liquidity.
Cedar Fair recently completed an amendment that extends the suspension
of the testing of the senior secured leverage financial maintenance covenant
through the end of 2021. Starting with the first quarter of 2022,
through the fourth quarter of 2022, Cedar Fair can calculate the
senior secured leverage covenant using Adjusted EBITDA from the second,
third and fourth quarters of 2019. Cedar Fair will be subject to
a minimum liquidity covenant of $125 million through the end of
2022.
The negative outlook incorporates Moody's expectation of significant operating
losses and cash usage due to the coronavirus outbreak's impact on Cedar
Fair's ability to operate its parks as scheduled. While Cedar Fair
is projected to have over two years of available liquidity at existing
cash burn rates, Moody's expects the improvement in park performance
to be gradual and that leverage levels will remain at very high levels
until 2022 or 2023 depending on the depth and duration of the pandemic
and economic recession. The very high leverage levels leave Cedar
Fair poorly position to withstand any future weakness in performance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
An upgrade is unlikely as long as the coronavirus limits the ability to
operate Cedar Fair's amusement parks. The outlook could change
to stable if the parks are opened and Cedar Fair maintains an adequate
liquidity profile with leverage levels projected to be maintained below
6x. Expectations that Cedar Fair would remain in compliance with
its covenants would also be required. An upgrade could occur if
leverage was projected to be maintained below 5x with a free cash flow
to debt ratio of about five percent.
The ratings could be downgraded if there were any further increases in
debt to enhance liquidity to manage through the impact of the pandemic
or if Moody's expected sustained leverage above 6.5x. A
significant deterioration in Cedar Fair's liquidity position or
elevated concern that Cedar Fair may not be able to obtain an amendment
to its covenants if needed may also lead to a downgrade.
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 amusement parks,
water parks, and hotels in the U.S. and Canada.
Properties include its four largest parks, Cedar Point (OH),
Knott's Berry Farm (CA), Canada's Wonderland (Toronto), and
Kings Island (OH). In June 2006, Cedar Fair acquired Paramount
Parks, Inc. from CBS Corporation for a purchase price of
$1.24 billion. In 2019, Cedar Fair bought two
water parks in Texas for approximately $261 million. Revenue
for the LTM ending Q2 2020 was approximately $1 billion.
The principal methodology used in this rating 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.
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
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provides certain regulatory disclosures in relation to the provisional
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issued by one of Moody's affiliates outside the EU and is endorsed
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am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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
Stephen Sohn
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
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JOURNALISTS: 1 212 553 0376
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