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I AGREE
18 Jun 2019
New York, June 18, 2019 -- Moody's Investors Service (Moody's) assigned Cedar Fair, L.P.'s
(Cedar Fair) proposed senior unsecured note a B1 rating. The Ba3
Corporate Family Rating (CFR), Ba1 senior secured credit facility,
and B1 Senior Unsecured rating for the existing notes were all affirmed.
The outlook remains stable.
The net proceeds of the $500 million senior note are expected to
fund the acquisition of two Schlitterbahn water parks for approximately
$261 million, finance the purchase of the land at the Great
America amusement park in California for $150 million, and
repay a portion of the outstanding revolver balance.
The transaction is expected to increase pro forma leverage to 4.6x
from 4x as of Q1 2019. While the acquisition of the land in Santa
Clara underneath the Great America park is a positive and results in Cedar
Fair owning the land under all of its amusement parks, it does contribute
to higher leverage levels. The Schlitterbahn acquisition increases
the geographic diversity of its parks, but occurred at a high multiple
and will require some additional capital expenditures in the near term.
The revolver is typically drawn in advance of the beginning of the operating
season and then repaid from cash flow during the summer operating season,
so the repayment of the revolver with long term debt further increases
Moody's projected year end debt balance.
Moody's downgrade of the Speculative Grade Liquidity Rating to SGL-3
from SGL-2 reflects the continuing negative free cash flow after
distributions and capex which increases the prospects of higher debt levels
going forward.
A summary of Moody's actions are as follows:
Assignments:
..Issuer: Cedar Fair, L.P.
....Gtd Senior Unsecured Regular Bond/Debenture,
Assigned B1 (LGD5)
Affirmations:
..Issuer: Canada's Wonderland Company
....Senior Secured Revolving Credit Facility,
Affirmed Ba1 (LGD2)
..Issuer: Cedar Fair, L.P.
.... Corporate Family Rating, Affirmed
Ba3
.... Probability of Default Rating,
Affirmed Ba3-PD
....Senior Secured Term Loan B, Affirmed
Ba1 (LGD2)
....Senior Secured Revolving Credit Facility,
Affirmed Ba1 (LGD2)
....Gtd Senior Unsecured Regular Bond/Debenture,
Affirmed B1 (LGD5)
Downgrades:
..Issuer: Cedar Fair, L.P.
.... Speculative Grade Liquidity Rating,
Downgraded to SGL-3 from SGL-2
Outlook Actions:
..Issuer: Canada's Wonderland Company
....Outlook, Remains Stable
..Issuer: Cedar Fair, L.P.
....Outlook, Remains Stable
RATINGS RATIONALE
Cedar Fair's Ba3 CFR reflects its portfolio of regional amusement parks
and good EBITDA margins. The parks have substantial attendance
(25.9 million in 2018) and are supported by experienced park management
teams with high entry barriers. Sizable reinvestment is necessary
to maintain a competitive service offering as attendance is exposed to
competition from an increasingly wide variety of other leisure and entertainment
activities as well as cyclical discretionary consumer spending.
Results are also highly seasonal and sensitive to weather conditions.
Pro forma debt-to-EBITDA leverage of 4.6x as of Q1
2019 (including Moody's standard adjustments) is relatively high,
and an increase in leverage from the 3.5x range that Cedar Fair
maintained over the past several years. Distributions to unit holders
under the MLP structure (the annual per unit distribution was increased
to $3.70 from $3.56 in Q4 2018) are substantial
and led to slightly negative free cash flow during the last two years
which is projected to continue in 2019.
The stable rating outlook incorporates Moody's expectation of low
to mid-single digit revenue and EBITDA growth if weather conditions
are favorable that should lead to a modest reduction in leverage aided
by the repayment of the remaining revolver balance. However,
weaker than expected performance during the current operating season or
higher levels of negative free cash flow have the potential to lead to
a negative rating action.
Cedar Fair's SGL-3 speculative-grade liquidity rating reflects
its adequate liquidity position over the next 12 months supported by covenant
headroom, a $275 million revolver due April 2022 that is
projected to have approximately $42 million drawn pro forma for
the transaction ($15 million of L/C's outstanding) and a cash balance
of $60 million as of Q1 2019. Free cash flow (FCF) after
distributions was negative $54 million in the LTM ending Q1 2019
in addition to being negative in FY 2018 and 2017. Moody's
projects FCF will be negative in 2019 after $170 to $180
million of capital expenditures and approximately $209 million
in distributions. The pro forma EBITDA to interest coverage ratio
is 4.1x as Q1 2019 and expected to improve slightly in 2019.
Cedar Fair is reliant on its $275 million revolver for seasonal
borrowings. The maximum amount drawn on the revolver was $60
million in 2018, down from $110 million in 2017 and $101
million in 2016. Moody's projects Cedar Fair will maintain
over $150 million of unused capacity under its revolvers during
the peak seasonal cash usage period in April and May. The maximum
debt to EBITDA covenant is 5.5x for the life of the loan and Moody's
expects Cedar Fair will maintain an EBITDA cushion of around 20%
based on our revenue/EBITDA growth assumptions. The revolver is
not subject to a clean down provision. Moody's anticipates
Cedar Fair would reduce its distribution levels or cut growth capex in
a dire scenario which would provide additional liquidity. The $450
million senior unsecured note due 2024 becomes callable in June 2019 at
102.688.
The MLP structure and likelihood that management will direct excess 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. An EBITDA to interest ratio above 4.5x
would also be required for an upgrade as would a sustained positive free
cash flow to debt ratio after distributions of over 5% with a good
liquidity position.
Weak operating performance, debt funded equity repurchases,
distributions or acquisitions that led to leverage sustained above 4.5x
would put negative pressure on the ratings. An EBITDA to interest
ratio below 3x, continued negative free cash flow that led to a
deterioration in its liquidity position, or failure to maintain
a sufficient EBITDA cushion under financial covenants could also lead
to a negative rating action.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies 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 eleven amusement
parks, two outdoor water parks, one indoor water park,
and four hotels in the U.S. and Canada. Properties
include Cedar Point (OH), Knott's Berry Farm (CA), Kings Island
(OH), and Canada's Wonderland (Toronto). In June 2006,
Cedar Fair acquired Paramount Parks, Inc. from CBS Corporation
for a purchase price of $1.24 billion. In June 2019,
Cedar Fair entered into an agreement to buy two Schlitterbahn water parks
for approximately $261 million. Revenue for the LTM ending
Q1 2019 was approximately $1.4 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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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
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
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
© 2020 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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