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Rating Action:

Moody's assigns Vail Resorts' CFR of Ba3 CFR; senior unsecured notes rated B2

29 Apr 2020

New York, April 29, 2020 -- Moody's Investors Service, ("Moody's") assigned ratings for Vail Resorts, Inc. (Vail) including a Ba3 Corporate Family Rating (CFR), a Ba3-PD Probability of Default Rating, and a Speculative Grade Liquidity rating of SGL-1. Concurrently Moody's assigned a B2 rating to the company's proposed $500 million senior unsecured notes due 2025. The outlook is stable.

Proceeds from the $500 million senior unsecured notes will be used to increase cash on hand and for general corporate purposes.

Assignments:

..Issuer: Vail Resorts, Inc.

....Senior Unsecured Regular Bond/Debenture, Assigned B2 (LGD5)

.... Corporate Family Rating, Assigned Ba3

Reinstatements:

..Issuer: Vail Resorts, Inc.

.... Probability of Default Rating, Reinstated to Ba3-PD

.... Speculative Grade Liquidity Rating, Reinstated to SGL-1

Outlook Actions:

..Issuer: Vail Resorts, Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

Vail's Ba3 CFR reflects its high financial leverage with debt/EBITDA projected to increase to around 6.0x by fiscal year-end July 2020, from a moderate 3.3x as of the twelve months period ended January 31, 2020 (pro forma for the notes offering and incorporating Moody's adjustments). Vail has good liquidity to manage through the coronavirus-induced downturn and earnings will improve and leverage will decline once the economy emerges from recession. However, the rating also reflects the unprecedented nature of the downturn and that social distancing practices in areas such as lift lines, restaurants, and lodges will lead to less visitation and facility utilization until vaccines or other effective coronavirus countermeasures are in place, the timing of which is highly uncertain.

Vail's operating results were negatively impacted by the early closure of its resorts in mid-March 2020, due to the coronavirus pandemic. Moody's expects efforts to contain the coronavirus will continue to significantly affect operating performance in fiscal 2021 mainly through reduced utilization. There is also potential that some resorts will remain closed by the start of the 2020-2021 ski season in November 2020. Moody's projects debt/EBITDA financial leverage will improve in fiscal 2021 to below 5.0x if resorts open for the majority of the 2020-2021 ski season. However, Moody's expect skier visits, effective ticket prices, and ancillary revenue to be below normal levels. In addition, consumers may need to maintain social distancing and avoid large crowds, which factors will negatively affect resort operations and efficiency. A weak economic environment will also pressure discretionary consumer spending. Vail's operating results are highly seasonal, and exposed to varying weather conditions and discretionary consumer spending. Governance factors primarily relate to the company's aggressive acquisition strategy with acquisitions funded mainly with incremental debt, and Vail has been a dividend payer since 2011. The company's recent decision to suspend its dividend and the proposed bond offering to boost cash will favorably preserve liquidity and enhance the company's financial flexibility to manage through the coronavirus pandemic. Environmental considerations in addition to exposure to adverse weather include the need to access large quantities of water, which may be challenging following periods of severe drought, and the vast amounts of forest land the company is responsible to properly operate and protect.

The rating also reflects Vail's leading position in the North American ski resorts industry with a very strong portfolio of ski resorts, including some premier ski destinations that attract high income consumers and can command higher prices relative to peers. Vail benefits from its good geographic diversification and higher local skier customer mix following the Peak Resorts acquisition in September 2019. Vail's high and growing penetration of its Epic Pass provides a stable revenue stream that helps mitigate weather exposure. The North American ski industry has high barriers to entry and has exhibited resiliency even during weak economic periods, including the 2007-2009 recession.

Vail's SGL-1 speculative-grade liquidity rating reflects the company's very good liquidity bolstered by the material $620 million cash balance as of January 31, 2020 pro forma for the offering, and over $700 million of combined unused capacity on its subsidiaries revolver credit facilities, comprised of a $500 million Vail Holdings, Inc. (VHI) secured revolver due 2024 and a CAD$300 million Whistler Blackcomb secured revolver due 2024 (both unrated). The company's amendment to its VHI credit agreement eliminated financial maintenance covenants through January 31, 2022 and requires a $150 million minimum liquidity through the same period that Moody's expects the company to have strong cushion. These liquidity characteristics provide financial flexibility to fund operations through the temporary closure of its resorts in 2020 and its operating seasonality.

The B2 rating on the proposed $500 million senior unsecured notes due 2028 is two notches below the Ba3 CFR, reflecting the notes' effective subordination relative to the significant amount of senior secured debt in the capital structure.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The leisure travel sector including ski resorts has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Vail's credit profile, including its exposure to mandated stay at home orders, increased social distancing measures and discretionary consumer spending, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the outbreak continuing to spread. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Vail of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

The stable outlook reflects Moody's expectation that Vail's resorts will reopen by the start of the 2020-2021 ski season and remain in operation for most of the ski season, along with some economic recovery, resulting in improved operating results and credit metrics in fiscal 2021. The stable outlook also reflects Moody's expectation for positive free cash flows in fiscal 2021 driven by lower capital expenditures and dividend distributions.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that would lead to an upgrade include operations resuming for the 2020-2021 ski season and signs of good visitation trends and stable effective ticket and ancillary activity prices, leading to an expectation that the company's operating profits return close to fiscal year 2019 levels and that debt/EBITA will approach 4.0x.

Factors that would lead to a downgrade include operations being suspended longer than our assumption or expectations for weaker facility utilization and earnings recovery, resulting in debt/EBITDA remaining above 5.0x. A deterioration in liquidity could also lead to a downgrade.

Vail Resorts, Inc. is a leading operator of mountain resorts and regional ski areas, operating 37 mountain resorts, with 33 in the US, 1 in Canada, and 3 in Australia. The company is publicly traded (NYSE: MTN) and reported revenue of approximately $2.4 billion for the twelve month period ending January 31, 2020.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Oliver Alcantara
Analyst
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

John E. Puchalla, CFA
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.
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