US theme park operator SeaWorld recently closed on an amendment to its senior secured credit agreement that provided for a $500 million incremental term loan B. The proceeds were used to fund a distribution to the owners.
SeaWorld Parks & Entertainment Inc. Senior Secured Debt Rating Lowered To ‘BB-‘ From ‘BB’; Off CreditWatch Negative
• U.S. theme park operator SeaWorld recently closed on an amendment to its senior secured credit agreement that provided for a $500 million incremental term loan B, the proceeds of which it used to fund a distribution to the owners.
• Following our review of the final loan documents, we are revising our recovery rating on SeaWorld’s senior secured credit facility to a ‘2’, from ‘1’, and, in accordance with our notching criteria, lowering our issue-level rating on the senior secured credit facility to ‘BB-‘ from ‘BB’.
• The stable rating outlook reflects our expectation for adjusted leverage to remain around 5x over the intermediate term, in line with our ‘B+’ corporate credit rating.
NEW YORK (Standard & Poor’s) May 9, 2012–Standard & Poor’s Ratings Services said today that it revised its recovery rating on Orlando, Fla.-based SeaWorld Parks & Entertainment Inc.’s senior secured credit facility to ‘2’, indicating our expectation of substantial (70% to 90%) recovery for lenders in the event of a payment default, from ‘1’. In addition, in accordance with our notching criteria, we lowered our issue-level rating on the senior secured credit facility to ‘BB-‘ from ‘BB’ and removed the rating from CreditWatch, where it was placed with Negative implications on March 13, 2012. The revised recovery rating reflects the increase in senior secured debt following the addition of the $500 million incremental term loan B, which reduced recovery prospects under our simulated default scenario. The company’s senior secured credit facility now consists of a $172.5 million revolver, a $160 million term loan A, and a $1.3 billion term loan B.
Our ‘B+’ corporate credit rating on SeaWorld remains unchanged. The rating outlook is stable.
Our ‘B+’ corporate credit rating on SeaWorld reflects our assessment of the company’s business risk profile as “fair” and our assessment of the company’s financial risk profile as “aggressive”, according to our criteria.
“Our assessment of SeaWorld’s business risk profile as fair reflects recent strong performance, including improvement in its EBITDA margin from the realization of cost-reduction efforts, and our belief the company will maintain an EBITDA margin in the high-20% area,” said Standard & Poor’s credit analyst Ariel Silverberg. While this level of profitability is still below other rated theme park operators, it compares favorably with many issuers in the leisure space. The assessment also reflects our belief that the company will continue to benefit from productive investments made in the business on new attractions. We believe these positive factors are partially offset by the company’s EBITDA concentration in a few of its parks, its reliance on consumer discretionary spending, the capital intensity of the theme park business, and the seasonal nature of several of its parks.
Our assessment of SeaWorld’s financial risk profile as aggressive reflects our belief that the owners will maintain an aggressive financial policy with respect to distributions, which we believe will result in adjusted leverage remaining around 5x over the long term.
Our ratings currently incorporate our expectation for a slight decline in attendance and flat year-over-year per capita spending in 2012, which we believe would translate into a low-single-digit percent decline in revenue. We expect only slight growth in attendance and per-capita spending in 2013. This scenario reflects our economists’ current expectation for only modest growth in consumer spending in 2012 and 2013 and for unemployment to remain high (our economists’ forecast is for unemployment to remain high, declining to just under 8% through 2013). We remain somewhat cautious that a weaker economic recovery could pressure attendance and per-capita spending this year and our economists are currently forecasting a 20% risk (albeit down from as high as 40% in 2011) of the U.S. falling into a recession. Still, we believe SeaWorld will sustain cost controls and maintain EBITDA margin in the high 20% area, resulting in EBITDA declining only modestly in 2012 and growing slightly in 2013.
RELATED CRITERIA AND RESEARCH
• Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
• Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
• Business Risk/Financial Risk Matrix Expanded, May 27, 2009
• 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Mimi Barker, New York (1) 212-438-5054, firstname.lastname@example.org
Ariel Silverberg, New York (1) 212-438-1807
Emile Courtney, CFA, New York (1) 212-438-7824