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Rating Action:

Moody's downgrades ClubCorp to Caa1; outlook negative

09 Apr 2020

New York, April 09, 2020 -- Moody's Investors Service, ("Moody's") downgraded ClubCorp Holdings, Inc.'s ("ClubCorp") Corporate Family Rating (CFR) to Caa1 from B3, its Probability of Default Rating (PDR) to Caa1-PD from B3-PD, and the ratings on the company's senior secured first lien credit facilities to B3 from B2, including its $1,175 million term loan due August 2024 and its $175 million revolver due August 2022. Concurrently, Moody's downgraded the rating on the company's $425 million senior unsecured notes due 2025 to Caa3 from Caa2. The outlook was also changed to negative from stable.

Today's downgrades and negative outlook reflects ClubCorp's high financial leverage with debt/EBITDA at around 7.3x (pro forma for recent acquisitions), negative free cash flow, and Moody's expectations that headwinds stemming from the coronavirus outbreak will pressure earnings and cash flow generation over the next 12-18 months. The company generates 50% of revenues from dues, which are very high margin and provides support to the company's operating results. However, Moody's expects the social distancing measures and closure of on-premise dining as a response to the coronavirus pandemic and the related weakness in economic conditions, will lower guest visitations which could increase attrition, and will negatively impact the company's operating results in 2020. Given the anticipated decline in the company's earnings, debt/EBITDA financial leverage is expected to increase to over 7.5x and free cash flow generation will continue to be pressured.

Downgrades:

..Issuer: ClubCorp Holdings, Inc.

.... Corporate Family Rating, Downgraded to Caa1 from B3

.... Probability of Default Rating, Downgraded to Caa1-PD from B3-PD

....Senior Secured 1st Lien Revolving Credit Facility, Downgraded to B3 (LGD3) from B2 (LGD3)

....Senior Secured 1st Lien Term Loan, Downgraded to B3 (LGD3) from B2 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa3 (LGD5) from Caa2 (LGD5)

Outlook Actions:

..Issuer: ClubCorp Holdings, Inc.

....Outlook, Changed To Negative From Stable

RATINGS RATIONALE

ClubCorp's Caa1 CFR reflects the company's high financial leverage with debt/EBITDA at around 7.3x for the twelve months ended December 31, 2019 and its negative free cash flow generation since its 2017 leveraged buy-out. Moody's expects financial leverage to increase above 7.5x debt-to-EBITDA and free cash flows to continue to be pressured over the next 12-18 months because of headwinds related to the coronavirus outbreak. The company's core business as a golf and city club owner/operator is susceptible to discretionary consumer spending and factors such as varying regional weather conditions. High capital outlays for ongoing reinvestment and maintenance of the clubs is necessary to retain a premium service offering. ClubCorp also faces event risk stemming from the potential for large outlays associated with refunds of initiation deposits, of which the current portion of the liability exceeds $200 million. Governance factors include the company's debt financed acquisition strategy, and aggressive shareholder-friendly financial strategies under private equity ownership.

The rating also reflect ClubCorp's leadership position in the private club membership business and its solid and growing recurring revenue base prior to the coronavirus pandemic, which is underpinned by a dues-based business model and affluent clientele. ClubCorp benefits from acquiring clubs near densely populated and affluent areas, typically with the goal of clustering its properties to enhance the value proposition of its Optimal Network Experience (or O.N.E.) that provides upgrade offerings and cross-sell opportunities. The company's adequate liquidity reflects access to its $175 million revolver due in 2022, which provides financial flexibility to fund working capital needs over the next 12 months, and lack of near-term maturities until its revolver is due.

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 Lodging, Leisure & Restaurants sector 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 ClubCorp's credit profile, including its exposure to US quarantines and discretionary consumer spending, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and ClubCorp remains vulnerable to the outbreak continuing to spread. We regard 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 ClubCorp of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

The negative outlook reflects Moody's expectation that headwinds related to the coronavirus outbreak will pressure ClubCorp's profitability and cash flows, and the uncertainty around the duration of social distancing measures and weak economic conditions, as well as the pace of the rebound once the pandemic begins to subside.

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

The ratings could be upgraded if the company's operating results and free cash flow generation improve driven by sustained organic revenue growth and EBITDA margin expansion, if debt/EBITDA is sustained below 7.0x and at least adequate liquidity is maintained with less reliance on revolver borrowings. The ratings could be downgraded if operating results deteriorate beyond Moody's expectations, cash outflows or litigation related to membership deposits increase, or if there is a deterioration in liquidity for any reason such as by increasing revolver reliance.

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.

Headquartered in Dallas, Texas, ClubCorp Holdings, Inc., through its subsidiaries, is one of the largest owners, operators and managers of private golf, country, city, sports and alumni clubs in North America, and the largest owner of golf clubs in the US. As of February 25, 2020, the company operated 214 clubs (174 golf & country clubs and 40 city clubs, formerly known as business, sports & alumni clubs), with locations in 27 states, the District of Columbia and two foreign countries (Mexico and China) serving more than 430,000 individual members via over 186,000 memberships. In September 2017, the company was acquired and taken private by affiliates of investment funds managed by Apollo Global Management, LLC in an LBO transaction valuing the firm at approximately $2.3 billion. The company is private and does not publicly disclose its financial results. ClubCorp generated revenue of approximately $1.16 billion for the twelve-month period ended December 31, 2019.

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 outcome 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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