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Rating Action:

Moody's downgrades SeaWorld's CFR to B2; outlook changed to negative from stable

10 Aug 2017

New York, August 10, 2017 -- Moody's Investors Service (Moody's) downgraded SeaWorld Parks and Entertainment, Inc.'s (SeaWorld) corporate family rating (CFR) to B2 from B1 and the 1st lien term loan facilities and revolver were also downgraded to B2 from B1. The outlook was changed to negative from stable.

The ratings were downgraded and the outlook was changed to negative due to weaker than expected performance during the first half of 2017 as well as projections that performance would remain challenging through the second half of 2017. Moody's adjusted leverage is 5.8x as of Q2 2017, but we expect leverage to increase above 6x by the end of 2017 which is above the threshold for a B1 CFR. Attendance at the company's parks declined by 353,000 and revenue decreased 5% in the first half of 2017. SeaWorld also lowered its guidance for adjusted EBITDA (as calculated by the company) for 2017 to a range of $280 to $310 million from $330 to 360 million which was provided in Q1 2017. The company is expected to increase its marketing spend above expectations to offset brand challenges at its San Diego park and competitive conditions in Orlando.

A summary of Moody's actions are as follows:

SeaWorld Parks and Entertainment, Inc.

Corporate Family Rating, downgraded to B2 from B1

Probability of Default, downgraded to B3-PD from B2-PD

Speculative Grade Liquidity, affirmed at SGL-3

Senior Secured Revolving credit facility due 2022, downgraded to B2 (LGD3) from B1 (LGD3)

Senior Secured First lien term loan B-2 due May 2020, downgraded to B2 (LGD3) from B1 (LGD3)

Senior Secured First lien term loan B-5 due 2024, downgraded to B2 (LGD3) from B1 (LGD3)

Outlook: changed to negative from stable

RATINGS RATIONALE

SeaWorld's B2 CFR reflects the high leverage of 5.8x as of Q2 2017 and the impact over the last several years of negative publicity due to its orca shows and from competitive conditions in its Orlando market. The company has already changed its orca show to a natural based encounter at its San Diego park and ended the breeding of orcas in captivity, however the company still faces brand challenges with some consumers. The response by customers to the natural based encounter orca show also increases uncertainty when the existing orca shows in Orlando and San Antonio are changed in future years. The parks are highly seasonal and sensitive to cyclical discretionary consumer spending, weather conditions, changes in fuel prices, terrorism, public health issues as well as other disruptions outside of the company's control. Despite lower adjusted EBITDA over the past three years and expectations of a fourth year of declines in 2017, the company still generates meaningful annual attendance (approximately 21.6 million LTM as of Q2 2017) and has a significant capital spending program for new rides and attractions. The value of its portfolio of parks is also substantial and provides additional asset protection.

SeaWorld has an adequate liquidity position as reflected in our SGL-3 rating supported by cash of $34 million as of Q2 2017 and cash flow to cover expected capital spending of approximately $165 to $175 million in 2017 in addition to required debt service. The company benefits from existing NOLs and is expected to be have minimal cash tax payments. In September 2016, SeaWorld suspended its dividend payment of approximately $72 million annually to increase flexibility to deploy its capital. We expect seasonal reliance during the first half of the year on the $210 million revolver which matures in 2022 (with a springing maturity 91 days ahead of the maturity of the term loan B-2 due in May 2020). The revolver had $40 million drawn as of the end of Q2 2017, but the company repaid the outstanding balance following quarter end.

Moody's anticipates the company will maintain access to the revolver and remain in compliance with the credit facility covenants in the near term, but the cushion of compliance is expected to be reduced given recent EBITDA guidance. The total leverage covenant is set at 5.75x and the interest coverage ratio is set at 2.05x for the life of the loan (based on credit agreement definitions). As of Q2 2017, the total leverage ratio as defined in the credit agreement is 4.77x. The parks are divisible and could be sold individually, but all of the company's assets are pledged to the credit facility and asset sales trigger 100% mandatory repayment if proceeds are not reinvested within 12 months.

The negative outlook reflects the projected tightening of its total leverage ratio compared to the required covenant level going forward and our expectation that leverage will increase above 6x as calculated by Moody's at the end of the 2017. Ongoing competitive conditions in its Orlando, FL market, uncertain international tourist visitation, and brand perceptions remain risks to performance.

A stabilization of the rating could occur after the company demonstrates positive organic revenue, attendance, and EBITDA growth. Liquidity would also need to be good with a sufficient cushion of compliance with its covenant requirements. Comfort that there were not any significant legislative, regulatory, or activist actions that would materially impact operations would also be required. Leverage would also need to be well below 6.5x.

Downward rating pressure would result from continued poor operating performance due to negative publicity, economic weakness, weak customer appeal of new attractions, competitive conditions, or regulatory/legislative changes so that leverage increased above 6.5x (as calculated by Moody's). A weakened liquidity profile or failure to maintain an adequate cushion of compliance with covenants could also lead to a downgrade.

SeaWorld Entertainment, Inc., through its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (SeaWorld), own and operate twelve amusement and water parks located in the US. Properties include SeaWorld (Orlando, San Diego and San Antonio), Busch Gardens (Tampa and Williamsburg) and Sesame Place (Langhorne, PA). The Blackstone Group (Blackstone) acquired SeaWorld in December 2009 in a $2.4 billion (including fees) leveraged buyout. SeaWorld completed an initial public offering in April 2013 and Blackstone has exited its ownership position in Q2 2017. SeaWorld's revenue was approximately $1.3 billion as of LTM Q2 2017.

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.

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

John Diaz
MD - Corporate Finance
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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