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Rating Action:

Moody's upgrades Cirque's CFR to B2; assigns a B2 rating to new bank credit facility

21 Feb 2023

Toronto, February 21, 2023 -- Moody's Investors Service (Moody's) upgraded Cirque du Soleil Holding USA NewCO, Inc.'s (Cirque) corporate family rating (CFR) to B2 from B3 and the probability of default rating (PDR) to B2-PD from B3-PD. Moody's also assigned a B2 rating to both Cirque's first lien senior secured term loan due 2030 and the multi-currency revolving credit facility expiring 2028. Proceeds from the term loan will be used to refinance Cirque existing first lien and second lien term loans due 2025 and 2027, respectively. The ratings on the existing first and second lien term loans will be withdrawn upon close of the transaction. The outlook remains stable.

"The upgrade primarily reflects Cirque's reduced leverage, which we expect to be 4.2x once the refinancing is complete" said Jason Mercer, Moody's Vice President. "It also reflects the successful relaunch of all of Cirque's resident and touring shows."

Upgrades:

..Issuer: Cirque du Soleil Holding USA NewCO, Inc.

.... Corporate Family Rating, Upgraded to B2 from B3

.... Probability of Default Rating, Upgraded to B2-PD from B3-PD

Assignments:

..Issuer: Cirque du Soleil Holding USA NewCO, Inc.

....Backed Senior Secured Bank Credit Facility, Assigned B2 (LGD4)

Outlook Actions:

..Issuer: Cirque du Soleil Holding USA NewCO, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

Cirque's B2 CFR benefits from: 1) a strong operational track record of developing, managing and acquiring shows; 2) good liquidity with proforma cash of over $60 million, positive free cash flow, and a new $100 million committed revolving credit line; 3) a partnership model for resident shows that minimizes capital outlays and supports operational stability; and 4) strong brand recognition and a price model that targets households with high disposable income and thus resilient against recessionary pressures. The rating is constrained by: 1) modest leverage with Moody's adjusted debt to EBITDA estimated to be about 4.0x through to 2023; 2) a geographic concentration of Las Vegas venues, which we estimate accounts for about half of Cirque's EBITDA; and 3) a business concentration that is focused on performing arts.

Cirque has good liquidity. Liquidity sources will total nearly $190 million versus expected loan amortization of about $5.5 million over the next 12 months. Liquidity sources consist of cash on hand of about $60 million (post refinancing transaction), a fully available $100 million committed revolving credit facility, as well as Moody's forecast for positive free cash flow of around $30 million over the next twelve months. The new term loan will have no financial covenants and the revolving facility will be subject to springing net leverage covenant after 35% drawn. Cirque's assets are largely encumbered and unavailable to provide additional liqudity.

Cirque's proposed senior secured loan due 2030 is rated B2, the same as the CFR because there is no other funded debt in the capital structure.

The stable outlook reflects Moody's expectation that Cirque's credit profile will strengthen after the refinancing. It also incorporates our expectations that the company will maintain financial discipline regarding capital expenditures, leverage and shareholder distributions, and maintain good liquidity.

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

The ratings could be upgraded if Cirque's adjusted debt to EBITDA is sustainably maintained below 4x and EBITA to interest is maintained above 2x, the company maintains conservative financial policies with respect to re-leveraging transactions such as acquisitions or dividends, and liquidity remains good with a healthy cash balance and sustained positive free cash flow.

The ratings could be downgraded if Cirque experienced a deterioration in its liquidity, in particular, sustained negative free cash flow, or if adjusted debt to EBITDA rises above 5.5x or interest coverage deteriorates below 1.5x for a sustained period.

Cirque du Soleil is a provider of unique, live acrobatic theatrical performances operating under three divisions: Resident Show Division (RSD), Touring Show Division (TSD) and Touring, Theatrical and Other (TTO).

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. 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.

Jason Mercer
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Paresh Chari
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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