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By clicking “I AGREE”, you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s information that becomes accessible to you (the “Information”). References herein to “Moody’s” include Moody’s Corporation. and each of its subsidiaries and affiliates..

 

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Rating Action:

Moody's upgrades CEC Entertainment's CFR to B3

21 Jul 2022

New York, July 21, 2022 -- Moody's Investors Service ("Moody's") upgraded CEC Entertainment, LLC's (CEC) ratings including its corporate family rating to B3 from Caa1, its probability of default rating to B3-PD from Caa1-PD, amd its senior secured rating to B3 from Caa1. The outlook is stable.

Upgrades:

..Issuer: CEC Entertainment, LLC

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

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

.... Senior Secured Regular Bond/Debenture, Upgraded to B3 (LGD3) from Caa1 (LGD4)

Outlook Actions:

..Issuer: CEC Entertainment, LLC

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

"The upgrade reflects CEC's earnings recovery over the last few quarters driven by pent up consumer demand for childrens' gatherings and special events.  Moody's expects that these demand trends will continue over the second half of the year driving leverage to improve to about 5.0x over the next 12-18 months despite a challenging inflationary environment that has affected commodity costs and labor expenses," said Matt Furbish, Moody's Analyst.  For the LTM period ending May 1, 2022, Moody's adjusted debt/EBITDA was 5.3x.

CEC's B3 CFR is supported by its improved debt/EBITDA, meaningful scale in terms of number of locations, the brand awareness of "Chuck E. Cheese", its good margins versus restaurant peers driven by its mix of entertainment/gaming offerings, and its good liquidity. The credit profile, however, is constrained by high inflation that has impacted labor and food costs industrywide and meaningfully compressed margins. The level to which inflation further weakens CEC's earnings could result in negative free cash flow during the fiscal year ending January 2023, due to growth capital expenditures needed for investment in store remodels and other upgrades. However, CEC's meaningful cash balances provides it with a solid buffer to support any potential cash flow deficits. CEC's credit profile is also constrained by its currently weak EBIT/interest of less than 1.0x.   The credit profile also incorporates the company's high seasonality with annual earnings typically concentrated in the first quarter and its store concentration in California, Texas and Florida.

The stable outlook reflects CEC's good liquidity and Moody's view that EBIT/interest coverage will strengthen even as the company navigates a challenging macro-economic backdrop.

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

Ratings could be upgraded should operational improvement be sustained to a level where debt/EBITDA is maintained around 5.5x and EBIT/interest coverage above 1.5x. An upgrade would also require the maintenance of good liquidity including positive free cash flow.  

Ratings could be downgraded if earnings were to deteriorate or negative free cash flow were to weaken liquidity for any reason. Quantitatively, a downgrade could occur should EBIT/interest coverage remain below 1.0x.

Headquartered in Irving, Texas, CEC Entertainment, LLC owns, operates and franchises about 675 Chuck E. Cheese and Peter Piper Pizza locations that provide family-oriented dining and entertainment in 47 states and 17 foreign countries. CEC is owned by a group that includes prepetition debt lenders. Revenue for the fiscal year ending January 2022 was about $668 million.

The principal methodology used in these ratings was Restaurants published in August 2021 and available at https://ratings.moodys.com/api/rmc-documents/74304. Alternatively, please see the Rating Methodologies page on https://ratings.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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Matt Furbish
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

Margaret Taylor
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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