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14 Feb 2011
First-time ratings
Madrid, February 14, 2011 -- Moody's Investors Service has today assigned a provisional (P)B2
corporate family rating (CFR) and probability-of-default
rating (PDR) to Palace Entertainment Holdings, LLC ("Palace").
Concurrently, Moody's has assigned a provisional (P)B2 rating
and Loss Given Default (LGD) Assessment of LGD4 to the company's
proposed USD430 million worth of senior secured bonds due in 2017.
The outlook for all the ratings is stable.
This is the first time that Moody's has assigned ratings to Palace.
Moody's issues provisional ratings in advance of the final sale
of securities and these ratings reflect the rating agency's preliminary
credit opinion regarding the transaction only. Upon a conclusive
review of the final documentation, Moody's will endeavour
to assign a definitive rating to Palace's proposed USD430 million
senior secured notes. The definitive rating may differ from the
provisional rating.
RATINGS RATIONALE
"Palace's (P)B2 CFR reflects the company's strong EBITDA
margins and good operating cash flow generation from its sound portfolio
of regional amusement parks, which is diversified in terms of geography
and by type of park. Nevertheless, there is a certain degree
of profitability concentration in the company's top three parks,"
says Iván Palacios, a Moody's Vice President-Senior
Analyst and lead analyst for Palace.
"The rating also reflects Palace's relatively small size and
scale compared with other rated peers as well as its high debt/EBITDA
leverage and exposure to event risk due to its acquisitive strategy.
In addition, its revenues are vulnerable to economic cycles and
are highly seasonal," says Mr. Palacios.
"These concerns are mitigated by: (i) the lower risk profile
and higher resilience to economic cycles of regional parks compared with
destination parks; (ii) the company's track record of improvements
in profitability through the successful turnaround of undermanaged parks;
and (iii) its strong and experienced management team," adds
Mr. Palacios.
Palace is a wholly owned affiliate of Parques Reunidos, the third-largest
leisure park chain worldwide in terms of number of visitors after Walt
Disney and Merlin, and generates approximately 37% of Parques
Reunidos's revenues and 33% of the group's EBITDA.
Ownership by Parques Reunidos leads to efficiencies in terms of economies
of scale, global sourcing and best-practice benchmarking,
but could also be detrimental to Palace's credit profile if it had
to provide financial assistance to the parent, which also has a
leveraged financial profile. The (P)B2 CFR assumes effective ring-fencing
of the Palace restricted group from Parques Reunidos and no material cash
leakage to the parent.
Palace plans to issue the USD430 million six-year senior secured
bond and a USD100 million super senior RCF to refinance existing debt.
Concurrently, the shareholder is to inject an additional USD65 million
into the business. The provisional CFR, PDR and instrument
ratings are contingent on the successful completion of the refinancing
transaction.
The (P)B2 rating on Palace's USD430 million worth of senior secured
notes is at the same level as its CFR, as it is the largest piece
of debt in the company's capital structure. However,
the USD100 million RCF ranks ahead of the USD430 million worth of notes
by virtue of the intercreditor agreement, despite sharing the same
collateral package on a first-ranking basis.
Palace's capital structure is its primary ratings driver.
The company faces high financial risk, including leverage (as per
Moody's standard adjustments, which include capitalised operating
leases) of 6.0x as of the year ended 26 September 2010.
The stable outlook incorporates Moody's expectation that Palace
will maintain leverage in the 5.5x-5.0x range over
the rating horizon. This is based on an expected improvement in
Palace's operating performance and selective acquisition activity
in line with the company's strategy to turn around undermanaged
parks. Moody's notes, however, that the rating
is relatively weakly positioned within the rating category and there is
limited tolerance for deviation from Moody's forecast for the company's
operating performance.
Downward pressure on the rating could result from any of the following
(all as per Moody's standard adjustments): (i) sustained negative
FCF generation; (ii) sustained leverage significantly above 6x;
and (iii) sustained EBITDA less capital expenditure coverage below 1x.
An increase in leverage to fund distributions to the parent in the event
of pressure at other group entities would also likely have negative rating
implications. In addition, any concerns developing over liquidity
could exert downward pressure on the rating.
Upward pressure on the rating could develop if Palace were to sustain
leverage below 5x debt/EBITDA and an FCF/debt ratio of more than 5%,
while maintaining a good liquidity position and a track record of conservative
bolt-on acquisitions. Nevertheless, Moody's
notes that a change in CFR may result in the introduction of notching
for the senior secured notes rating.
The principal methodologies used in this rating were "Moody's
Approach to Global Standard Adjustments in the Analysis of Financial Statements
for Non-Financial Corporations" published in December 2010,
and "Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA" published
in June 2009.
Moody's assigned Palace's ratings by evaluating factors that
it 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 short to
medium term; and (iv) management's track record and tolerance
for risk. Moody's compared these attributes against those
of other issuers both within and outside Palace's core industry
and believes that Palace's ratings are comparable to those of other
issuers with similar credit risk.
Headquartered in California, Palace Entertainment Holdings,
LLC is an amusement parks operator in the US. Palace owns and operates
a total of 40 parks including 21 family entertainment centres, twelve
water parks, six theme parks and one animal park. Palace
is an affiliate of Parques Reunidos Servicios Centrales S.A.U.,
a Spanish corporation, primarily controlled and indirectly majority
owned by funds managed by Candover Partners Limited, a UK-based
private equity firm. In the year ended 26 September 2010,
the company reported sales of USD260 million and EBITDA (as reported by
the company) of USD79.4 million.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
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Moody's adopts all necessary measures so that the information it uses
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Madrid
Ivan Palacios
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns (P)B2 to Palace Entertainment; outlook stable
No Related Data.
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