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Rating Action:

Moody's confirmed Parques' CFR at B3, outlook negative

30 Jun 2020

Stockholm, June 30, 2020 -- Moody's Investors Service ("Moody's") has today confirmed the B3 corporate family rating (CFR) and the B3-PD probability of default rating ("PDR") rated under Piolin II S.a.r.l ("Parques"). Concurrently Moody's confirmed the B3 rating on Piolin BidCo, S.A.U.'s existing €1170 million guaranteed senior secured term loan B due 2026 (which includes the €970 million guaranteed senior secured term loan B and the €200 million incremental guaranteed senior secured term loan B2) and €200 million guaranteed senior secured revolving credit facility (RCF) due 2026. The outlook on all ratings has been changed to negative from ratings under review. This concludes the review for downgrade initiated by Moody's on 14 April 2020.

RATINGS RATIONALE

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 and entertainment industry has been one of the sectors most significantly affected by the extensive measures and restrictions taken by governments to contain the virus. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Parques was severely impacted by the coronavirus outbreak since mid-March given the restrictions on park openings in the majority of its markets. As the outbreak spread the company was required to close all of its parks. As a result revenues were down by around 30% in Q1 2020 versus the same period last year and Moody's expects revenues for Q2 to be close to zero. However Moody's notes that a number of parks have reopened since late May. By the end of June around 60% of parks are expected to reopen and by mid-July, 85%. Given that tickets are typically bought at the parks or a few days before the visit, there is limited visibility on how the attendance levels will evolve in the coming weeks. However Moody's recognises that Parques' visitors are mostly domestic with limited dependence on tourism. This could benefit the company as the coronavirus outbreak is reducing demand for overseas destinations. Local and regional parks could also benefit from their higher affordability, shorter catchment area, lower length of stay and planning needs.

Moody's expects revenues to decline by around 45% in 2020 with a significant impact on profitability. The projected drop in EBITDA will significantly increase Parques' Moody's-adjusted leverage, which is expected to exceed 7.5x over the next 18 months. Moody's notes that the company's capital structure now includes €200 million of incremental term loan and around €50 million of government backed loans, which were raised during the months of April and May. The weaker credit metrics are balanced by the enhanced liquidity profile, which is further supported by the extensive cost cutting actions being implemented by the company and around €60 million capex being cancelled. Nevertheless the cash burn remains high which Moody's estimated around €20-25 million per month when parks are closed. As a result free cash flow (FCF) will be significantly negative in 2020. Moody's also notes that the incremental term loan came at a significant premium and therefore will further limit the FCF generation going forward. There remains high risks of more severe downside scenarios and the pace of recovery in attendance levels in the coming weeks will be crucial in determining Parque's operating performance and liquidity profile for 2020. Moody's notes that approximately 90% of EBITDA is typically generated in Q3. Therefore a delay in park openings or weak attendance rates resulting in negative FCF in the key summer period could result in negative rating pressure over the next few months.

ENVIRONMENTAL, SOCIAL & GOVERNANCE CONSIDERATIONS

Governance risks mainly relate to the company's private-equity ownership which tends to tolerate a higher leverage, a greater propensity to favour shareholders over creditors as well as a greater appetite for M&A to maximise growth and their return on investment. However Moody's understands that Parques' ownership structure has a stronger focus on longer-term value creation and potentially be more supportive compared to a typical LBO.

STRUCTURAL CONSIDERATIONS

The senior secured credit facilities due in 2026 (including the incremental term loan B2) are rated B3, in line with the CFR, because they are the only class of debt in the capital structure. The facilities are guaranteed by material subsidiaries representing at least 80% of consolidated EBITDA. The security package mainly consists of share pledges, bank accounts and intercompany receivables. The incremental term loan B2 will rank pari passu with the existing senior secured credit facility, and benefit from the same security and guarantor package. The B3-PD probability of default rating is in line with the CFR, based on our assumption of a 50% family recovery rate, as commonly used for capital structures with first-lien secured debt with springing financial covenants.

LIQUIDITY

Parques' liquidity profile has strengthened after the company successfully secured additional external resources in April and May. The company stated that as of June 12 it had €268 million cash on balance sheet, pro forma for the €200 million incremental term loan and around €50 million of government backed financing. The RCF of €200 million remains fully drawn. This provides additional liquidity buffer to support the company during the disruption caused by the outbreak. However low attendance levels during its key summer months or a potential second wave could rapidly reduce its liquidity buffer and deteriorate its liquidity profile. The company's debt has one springing net leverage covenant tested only when the drawn RCF minus cash represents more than 40% of the RCF commitment (€80 million). Moody's expects the company to remain compliant with its covenant.

OUTLOOK

The negative outlook reflects the uncertainties related to (1) consumer behavior and visitation levels once parks reopen; (2) the length and severity of the pandemic, including the potential for a second wave or local health safety regulations which could constrain attendance levels; and (3) the extent the economic recession will impact consumer's disposable income. These uncertainties could further deteriorate Parques' credit metrics and slow its recovery pace. As such, further negative rating pressure could develop over the next few months if the pandemic results in a more severe impact on operating performance and liquidity than Moody's currently anticipates. The outlook could be stabilized if there is enough clarity regarding (1) the stabilization of the coronavirus outbreak and attendance levels, (2) the company's ability to delever to below 7.5x in the next 18 months and (3) its ability to generate positive FCF.

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

Upward rating pressure would not arise until the coronavirus outbreak is brought under control and travel restrictions are lifted. Over time, Moody's could upgrade the company's rating if the company is able to improve its margins to pre-coronavirus levels, leverage moves below 6.5x, free cash flow is consistently positive and cash flow on balance sheet, excluding the RCF, is at least around €50 million.

Conversely, Moody's could downgrade the rating if Parque's liquidity profile significantly deteriorates or if leverage is sustained at above 7.5x.

PRINCIPAL METHODOLOGY

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.

COMPANY PROFILE

Parques is a global operator of regional amusement, animal and water parks. The company operates 61 parks (45 regional parks) in 12 countries across three continents that receive around 20 million visitors each year. In 2019, pro forma of the Tropical Islands acquisition, Parques generated €694 million in revenue and €196 million in company-adjusted EBITDA.

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.

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.

Nathalie Tuszewski
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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