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Rating Action:

Moody's rates Boyne USA: B2 CFR, B2 Second Lien Notes

23 Mar 2018

Approximately $400 million of rated debt affected

New York, March 23, 2018 -- Moody's Investors Service assigned first-time ratings for Boyne USA, Inc. ("Boyne," dba Boyne Resorts), including a Corporate Family Rating and Probability of Default Rating of B2 and B2-PD, respectively. At the same time, Moody's assigned a B2 rating to the company's $400 million of newly proposed senior secured second-lien notes. The ratings outlook is stable.

"Boyne's refinancing of a portion of its existing debt with anticipated proceeds from the notes offering will be cash flow accretive for the company going forward by lowering its expected cost of capital," said Vice President and Moody's lead analyst for the company, Brian Silver. "The debt offering will also be used to fund the acquisition of seven resorts and attractions that the company had been operating under leasehold arrangements for ten or more years," according to Silver, "which effectively removes the otherwise normal course potential for integration risk."

Moody's noted that Boyne's portfolio of resorts will continue to be anchored by its ownership of Big Sky Resort in Montana, one of the premier mountain resort destinations in the North American market but a relatively large portion of the company's revenue and profitability. In addition, Boyne is relatively small in terms of revenue and has high pro forma financial leverage, according to the rating agency. But Moody's anticipates that the company will deleverage its balance sheet as EBITDA grows over the next few years, which will gradually improve its financial risk profile.

The following ratings have been assigned for Boyne USA, Inc. (subject to receipt of final documentation):

Corporate Family Rating, B2

Probability of Default Rating, B2-PD

New $400 million senior secured second-lien notes due 2025, B2 (LGD4)

Outlook Action:

The ratings outlook is stable

RATINGS RATIONALE

Boyne USA, Inc.'s ratings are constrained by its high financial leverage approximating 5.9 times at December 31, 2017, pro forma for its newly proposed capital structure, as well as its relatively small size. The company is also exposed to a high degree of seasonality inherent to its core business as a mountain resort operator, with sensitivity to both discretionary consumer spending dynamics and weather conditions. However, the company's credit profile benefits from its long-standing and solid position in the North American ski industry, highlighted by its ownership of nine mountain resorts across North America. In addition, it has a well-diversified geographic footprint and benefits from relatively stable long-term fundamentals for the North American ski industry that are characterized by high barriers to entry and favorable supply and demand dynamics, which in turn support high margins. Moody's expects the company will grow its revenue and gradually deleverage via profitability improvements over the next few years. Also, roughly 20%-25% of Boyne's revenue base is unrelated to snowsports, the diversification of which is viewed favorably. Boyne is expected to have a good liquidity profile over the next 12-18 months, supported by balance sheet cash and access to an unrated $40 million revolver, as well as Moody's expectation that the company will generate positive free cash flow.

The stable outlook reflects Moody's expectation that visitation trends will remain healthy, assuming normalized snow conditions, and that the company will achieve low single-digit revenue and earnings growth over the next 12-18 months.

The ratings could be upgraded if the company continues to grow organically while sustaining debt-to-EBITDA below 5.0 times and maintaining at least a good liquidity profile. Alternatively, the ratings could be downgraded should the company not meet expectations and debt-to-EBITDA be sustained above 6.5 times, and/or EBITA-to-interest sustained below 1.2 times. Additionally, if liquidity weakens or the company becomes increasingly aggressive with respect to its financial policies, including undertaking a large debt-funded acquisition and/or the payment of dividends, the ratings could be downgraded.

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.

Boyne USA, Inc. (dba Boyne Resorts), headquartered in Petoskey, Michigan, operates nine mountain resorts (four with golf courses) and two non-ski properties consisting of one attraction (Gatlinburg Sky Lift) and one hotel/convention center with a 45 hole golf course (the Inn at Bay Harbor). The company is family owned by direct descendants of its founder. Pro forma for the transaction, wherein the company is acquiring seven properties it currently leases from Och-Ziff, and based on preliminary unaudited financial results for the twelve months ended December 31, 2017, the company generated revenue of approximately $355 million.

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.

Brian Silver, CFA
Vice President - Senior 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

Russell Solomon
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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