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Global Credit Research - 11 Feb 2011
Approximately $1.18 billion of debt instruments affected
New York, February 11, 2011 -- Moody's Investors Service assigned a Ba2 rating to Cedar Fair, L.P.'s
(Cedar Fair) proposed $1.18 billion senior secured term
loan B in conjunction with a re-pricing and maturity extension
of the facility. Cedar Fair is also amending its credit facility
to increase unit holder distribution flexibility and Moody's expects
the company will increase the distribution during 2011. Moody's
considers a higher distribution to be credit negative, but the move
was expected in the rating and Cedar Fair's debt and leverage are
still projected to decline over the next few years. As a result,
Cedar Fair's Ba3 Corporate Family Rating (CFR), Ba3 Probability
of Default Rating (PDR) and stable rating outlook are not affected.
..Issuer: Cedar Fair, L.P.
....Senior Secured $1.18 billion
Term Loan B, Assigned a Ba2, LGD3 - 37%
The proposed refinancing favorably reduces cash interest expense and extends
the maturity of the term loan by approximately one year to December 2017
from December 2016. The term loan balance will be $23 million
higher than the existing term loan to cover transaction fees and expenses
including a 1% call premium on the existing term loan. Moody's
estimates the proposed reduction in the term loan spread and Libor floor
will reduce cash interest expense by approximately $10 million
annually after factoring in the increase in the term loan balance.
Moody's anticipates Cedar Fair will utilize cash flow for reinvestment,
to pay distributions, and to reduce debt. The July 2015 maturity
and the pricing on the revolver are not changing. The Ba2 rating
on the existing December 2016 term loan will be withdrawn when the transaction
The amendment increases 2011 distribution capacity to $60 million
from the previous maximum of $40 million, of which $20
million was payable only if the secured leverage ratio was 3.0x
or lower. The 4.5x leverage ratio required to pay distributions
in 2012 and beyond is not changing. However, a loosening
of the excess cash flow sweep will have the effect of increasing distribution
flexibility starting in 2012. Moody's expects in the rating
that Cedar Fair will raise the distribution to $1 per unit in 2010
and approximately $1.25 in 2012. Debt-to-EBITDA
leverage (4.5x projected for FY 2010 incorporating Moody's
standard adjustments) is expected to decline to a low 4x range by 2012
based largely on debt reduction as EBITDA generation is expected to be
Cedar Fair's Ba3 CFR reflects the good operating cash flow and strong
EBITDA margins generated from the portfolio of regional amusement parks,
high leverage, and exposure to discretionary consumer spending.
Operations and the substantial attendance (22.8 million in 2010)
are supported by an experienced management team, consumer entertainment
from the rides and attractions, and high entry barriers.
Sizable reinvestment 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 is high,
but projected to decline to a low 4x range over the next few years.
Distributions to unit holders under the MLP structure consume cash flow,
but Moody's believes management is balancing its focus on lowering
debt-to-EBITDA leverage to its 4x target (excluding Moody's
standard adjustments) and increasing the distribution.
The stable rating outlook reflects Moody's view that Cedar Fair
will maintain a good liquidity position and continue to generate meaningful
cash flow. Moody's expects the annual distribution to increase
to $1.25 by 2012 with some debt reduction helping to lower
debt-to-EBITDA leverage to a low 4x range over the next
Weak operating performance, acquisitions, or unit holder distributions
or repurchases leading to a decline in CFO less capex-to-debt
to a level sustained below 6% or EBITDA less CapEx to interest
sustained below 1.75x could result in a downgrade. A deterioration
in liquidity due to increasing revolver usage (above seasonal drawdowns)
or failure to maintain sufficient EBITDA cushion under its financial covenants
could also result in a downgrade.
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 significantly
below 4.0x, EBITDA less capex-to-interest is
sustained above 3.0x, and CFO less CapEx-to-debt
is sustained above 9% 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.
The last rating action was on May 20, 2010 when Moody's changed
Cedar Fair's rating outlook to stable from negative, upgraded the
speculative-grade liquidity rating to SGL-2 from SGL-3,
and assigned a Ba2 senior secured credit facility rating, and B2
senior unsecured note rating in conjunction with a proposed refinancing
of the capital structure. Moody's commented on July 15, 2010
that Cedar Fair's revised financing structure did not affect the company's
ratings and indicated on October 15, 2010 and January 12,
2011 that a proposal and unit holder vote on an amendment to the company's
partnership agreement to prioritize distributions over debt reduction
(the proposal was not approved) did not affect Cedar Fair's ratings.
For additional information on Cedar Fair's ratings, please see the
credit opinion on www.moodys.com.
The principal methodology used in determining instrument ratings was Loss
Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Cedar Fair's ratings were assigned by evaluating factors we believe are
relevant to the credit profile of the issuer, such as i) the business
risk and competitive position of the company versus others within its
industry, ii) the capital structure and financial risk of the company,
iii) the projected performance of the company over the near to intermediate
term, and iv) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside
of Cedar Fair's core industry and Cedar Fair's ratings are believed to
be comparable to those of other issuers of similar credit risk.
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, seven water parks (six outdoor
and one indoor) and hotels in North America. Properties are located
in the U.S. and Canada and include Cedar Point (OH),
King's 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 the LTM ended 9/26/2010 was approximately
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
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assinging
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba2 rating to Cedar Fair's refinancing term loan B
250 Greenwich Street
New York, NY 10007
No Related Data.
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