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Rating Action:

Moody's assigns B3 to ClubCorp's proposed $415 million senior notes; CFR at B2

Global Credit Research - 10 Nov 2010

New York, November 10, 2010 -- Moody's Investors Service today assigned B2 Corporate Family and Probability of Default ratings to ClubCorp Club Operations, Inc.'s ("ClubCorp"). A B3 was assigned to the company's proposed $415 million senior unsecured notes offering due 2018. A Ba2 was assigned to the company's new $310 million senior secured term facility due 2016 and $50 million senior secured revolver expiring 2015. The rating outlook is stable.

New ratings assigned:

Corporate Family Rating at B2

Probability of Default Rating at B2

$50 million senior secured revolver expiring 2015 at Ba2 (LGD 2, 20%)

$310 million senior secured term loan B due 2016 at Ba2 (LGD 2, 20%)

$415 million senior unsecured notes due 2018 at B3 (LGD 5, 76%)

RATINGS RATIONALE

The proceeds from the proposed debt offerings along with a cash equity contribution by its owner, KSL Capital Partners, will be used to refinance approximately $1.2 billion of existing senior secured credit facilities.

ClubCorp owns and manages private clubs with a network of golf, country, business, sports and alumni clubs. The company generates annual revenue of about $700 million. ClubCorp is a private company and does not publicly disclose detailed financial information. The company was acquired in December 2006 by affiliates of KSL Capital Partners, a private equity firm specializing in travel and leisure businesses.

ClubCorp's B2 Corporate Family Rating reflects the company's narrow business focus, geographic concentration, high leverage -- pro forma debt/EBITDA is about 5.5 times -- and potential tax liability arising from the forgiveness of approximately $342 million of debt owed under the company's existing secured credit facilities (not rated). As part of a reorganization that took place in September 2010, the company's bank lenders agreed to forgive approximately $342 million of outstanding debt. The rating is supported by the high proportion of ClubCorp's revenues resulting from recurring monthly dues and the benefit to the company's free cash flow from low CAPEX requirements. Also considered is the company's adequate liquidity.

The B3 rating on the senior unsecured notes is one-notch lower than ClubCorp's Corporate Family Rating. This reflects the notes' junior ranking position to ClubCorp's senior secured bank facility. It also recognizes that the senior unsecured notes account for a majority of the debt capital structure.

The stable rating outlook anticipates that despite continued weakness in leisure and entertainment spending by consumers, ClubCorp's operating margins will remain intact and that the company will apply its positive free cash flow towards debt reduction. The stable outlook also anticipates that the company will be able to extend a $32 million mortgage loan that is collateralized by the assets of two golf and country clubs and matures in July 2011. ClubCorp has the right to extend the term of the loan to July 2013 upon satisfaction of certain conditions of the loan agreement. Additionally, the stable outlook assumes that ClubCorp's internal cash resources will be sufficient to deal with any cash tax payment requirement arising from the forgiveness of approximately $342 million of debt in late 2010.

ClubCorp's ratings could be upgraded if Moody's believes that the company will be able to achieve and sustain debt/EBITDA at or below 4 times as well as improve its liquidity profile. A higher rating would also require that the company extend its $32 million mortgage loan without impairment as well as resolve any tax liability arising from the forgiveness of outstanding debt. ClubCorp's ratings could be lowered if it appears that the company will not be able extend its $32 million mortgage or if Moody's believes that the tax liability arising from the forgiveness of outstanding debt cannot be satisfied from the company's internal cash resources. Ratings could also be lowered if the company's operating performance deteriorates or debt/EBITDA increases materially from its current level.

The principal methodologies used in this rating were Global Business & Consumer Service Industry published in October 2010, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

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Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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New York
Keith Foley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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Moody's assigns B3 to ClubCorp's proposed $415 million senior notes; CFR at B2
No Related Data.
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