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Rating Action:

Moody's assigns Ba1 rating to Cedar Fair's proposed credit facility, affirms Ba3 CFR

21 Feb 2013

Approximately $885 million of debt instruments affected

New York, February 21, 2013 -- Moody's Investors Service assigned Ba1 ratings to Cedar Fair, L.P.'s (Cedar Fair) proposed $885 billion senior secured revolvers and term loan. Cedar Fair plans to utilize the proceeds from the term loan as well as new unsecured debt to refinance its existing $1.13 billion term loan. Moody's also affirmed Cedar Fair's Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating (PDR), SGL-2 speculative-grade liquidity rating and stable rating outlook.

Assignments:

..Issuer: Cedar Fair, L.P.

....Senior Secured Bank Credit Facility (Revolver due 2018), Assigned Ba1, LGD2 - 19%

....Senior Secured Bank Credit Facility (Term loan due 2020), Assigned Ba1, LGD2 - 19%

..Issuer: Canada's Wonderland Company

....Senior Secured Bank Credit Facility (Revolver due 2018), Assigned Ba1, LGD2 - 19%

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

The proposed refinancing is credit positive as it will extend the overall maturity profile at a modest increase in cash interest expense (less than $5 million) that is manageable within the company's projected cash flow. Cedar Fair plans to fund transaction fees from its existing cash balance and, therefore, total debt should not change meaningfully.

The proposed senior secured credit facility consists of $255 million of revolvers due 2018 ($240 million U.S. tranche and $15 million Canadian tranche) and a $630 million term loan B due 2020. Moody's assumes in the Ba1 senior secured credit facility rating assignment that Cedar Fair refinances its existing term loan with the proposed term loan and the balance with unsecured debt. This same shift in the capital mix toward more unsecured debt would likely result in an upgrade of the $405 million senior unsecured notes due 2018 to B1 from B2. If Cedar Fair does not proceed with its plan to raise unsecured debt and the existing term loan is fully refinanced with new secured debt, Moody's would likely adjust the rating on the proposed credit facility to Ba2 from Ba1. The Ba2 ratings on the existing credit facility (revolvers due 2015 and term loan due 2017) would be withdrawn if the facility is terminated in conjunction with the proposed refinancing. The term loan is a joint and several obligation of Cedar Fair, Canada's Wonderland Company (Wonderland), which holds the Toronto park, and Magnum Management (Magnum; a non-operating holding company). The term loan, US revolver and Canadian revolver are cross guaranteed and cross collateralized by the US subsidiaries and Wonderland. The Canadian revolver can be drawn by Cedar Fair and Wonderland.

RATINGS RATIONALE

Cedar Fair's Ba3 Corporate Family Rating (CFR) reflects the good operating cash flow and strong EBITDA margins generated from its portfolio of regional amusement parks, high leverage and distribution payout, and exposure to discretionary consumer spending. Operations and substantial attendance (23.3 million in 2012) are supported by experienced park management teams, good entertainment value to consumers from the rides and attractions, 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 FY 2012 incorporating Moody's standard adjustments) is high, but has declined from 5.2x in 2009. Moody's projects debt-to-EBITDA leverage in a low 4x range or lower in 2013 and 2014 and this would more comfortably position the company within the rating category. Distributions to unit holders under the MLP structure (Cedar Fair previously announced it is increasing its annual per unit distribution to $2.50 in 2013 from $1.60) consume a majority of cash flow and are aggressive, but 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 earnings have more than recovered from the recession in recent years, and Moody's projects low single digit revenue and EBITDA growth in 2013 and 2014. Discretionary consumer spending is sensitive to economic conditions, and there is some downside if U.S. tax and spending policy changes or declines in corporate earnings hurt employment or consumer confidence.

Cedar Fair's SGL-2 speculative-grade liquidity rating reflects good liquidity over the next 12 months supported by modest projected free cash flow (after distributions) that is sufficient to meet the required annual term loan amortization (expected to be $6.3 million pro forma for the proposed refinancing), and good covenant headroom. Moody's projects Cedar Fair will generate roughly $30-$40 million of free cash flow in 2013 (after interest, approximately $120 million of capital expenditures, and the roughly $140 million distribution). This factors in Cedar Fair's plan to invest $15-$20 million per year for the next three years in various enhancements to its hotels and amusement parks in addition to its normal capital spending level (targeted in a 9% of net revenue range). The maximum debt-to-EBITDA and minimum fixed charge ratio covenants will be relaxed slightly from current levels and Moody's projects EBITDA headroom will exceed 30%. Moody's projects Cedar Fair will maintain roughly $100 million of unused capacity under its proposed $255 million revolvers around the peak in seasonal cash needs in April-May.

The stable rating outlook incorporates Moody's Macroeconomic Board projection for 1.5% to 2.5% U.S. real GDP growth in 2013 and reflects Moody's view that Cedar Fair will maintain a good liquidity position and continue to generate meaningful cash flow. Moody's expects modest annual increases in the distribution based on earnings growth. Debt reduction is expected to be modest, and debt-to-EBITDA is projected in a low 4x range or lower in 2013 and 2014.

The MLP structure and likelihood that management will direct cash to unit holders over time constrains the ratings. Material voluntary debt reduction such that debt-to-EBITDA is sustained below 3.5x, EBITDA less capex-to-interest is sustained above 3.0x, and CFO less capex-to-debt is sustained above 10% could result in 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, acquisitions, or unit holder distributions or repurchases leading to CFO less capex-to-debt to a level below 7%, EBITDA less capex to interest below 2.0x, or debt-to-EBITDA above 4.5x could result in a downgrade. 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.

Please see the ratings tab on Cedar Fair's issuer page on www.Moodys.com for the last credit rating action and rating history. Please see Cedar Fair's credit opinion on www.Moodys.com for additional information on the company's ratings.

Cedar Fair'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's core industry and believes Cedar Fair'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, headquartered in Sandusky, Ohio, is a publicly traded Delaware master limited partnership (MLP) formed in 1987 that owns and operates 11 amusement parks, five water parks (four outdoor and one indoor) and hotels in North America. Properties are located in the U.S. and Canada and include Cedar Point (OH), Kings Island (OH), Knott's Berry Farm (CA), and Canada's Wonderland (Toronto). In June 2006, Cedar Fair, L.P. completed the acquisition of Paramount Parks, Inc. (Paramount Parks) from a subsidiary of CBS Corporation for a purchase price of $1.24 billion. Cedar Fair's revenue for its fiscal year ended December 2012 was approximately $1.07 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.

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.

John E. Puchalla
VP - Senior Credit Officer
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 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 Ba1 rating to Cedar Fair's proposed credit facility, affirms Ba3 CFR
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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