Boyne USA, Inc. -- Moody's revises Boyne's outlook to stable from negative, assigns B1 rating to proposed notes; affirms B1 CFR

Rating Action: Moody's revises Boyne's outlook to stable from negative, assigns B1 rating to proposed notes; affirms B1 CFRGlobal Credit Research - 15 Apr 2021New York, April 15, 2021 -- Moody's Investors Service, ("Moody's") affirmed Boyne USA, Inc.'s (Boyne) ratings, including the company's B1 Corporate Family Rating (CFR), B1-PD Probability of Default Rating (PDR), and the B1 rating on the existing $580 million second lien secured notes due 2025. Moody's expects to withdraw the second lien notes rating at the close of the proposed refinancing transaction. Concurrently, Moody's assigned a B1 rating to Boyne's proposed $540 senior unsecured notes due 2029. In addition, Moody's revised the outlook to stable from negative.The revision of the outlook to stable from negative reflects Moody's expectation that operating performance for Boyne will continue to improve in 2021 as a higher share of the public receives vaccinations and the coronavirus pandemic subsides. Boyne delivered solid results for FY2020 ended December 31, 2020 with revenue down a modest 6% and EBITDA up slightly vs FY2019. Earnings improved due to strong yield and cost management in response to the coronavirus disruption to its operations and an increase in real estate sales, which shows the resilience of the business during the unprecedented pandemic in 2020. Moody's lease adjusted debt-to-EBITDA leverage stood at approximately 6.0x for the LTM period ended December 31, 2020 and Moody's expects it will decline to about 5.0x by the end of 2022. The revision also reflects Moody's expectation of very good liquidity over the next year with an approximately $145 million cash balance and access to an undrawn revolver (unrated; $90 million) pro forma for the proposed refinancing transaction. Given the company's planned $100 million of capex in FY21 (majority will be used for facility upgrades), Moody's expects free cash flow to be about $20 million negative for the year. However, Moody's expects the company will end FY21 with cash of about $120 million as well as access to the full $90 million revolver.Moody's took the following rating actions:Ratings Affirmed:Issuer: Boyne USA, Inc..... Corporate Family Rating, affirmed B1.... Probability of Default Rating, affirmed B1-PD.... Existing second lien senior secured notes, affirmed B1 (LGD4)Ratings Assigned:Issuer: Boyne USA, Inc...New proposed $540 million senior unsecured notes, assigned B1 (LGD4)Moody's will withdraw the B1 rating on the existing senior secured second lien notes at the close of the transaction.Outlook Actions:Issuer: Boyne USA, Inc.....Outlook, revised to Stable from NegativeRATINGS RATIONALEBoyne's B1 CFR reflects its elevated financial leverage with Moody's debt/EBITDA at about 6.0x at year end 2020. Moody's expects debt-to-EBITDA leverage will decline to about 5.0x by the end of 2022 because earnings will increase. Moody's expects good reinvestment, a rebound in volume, strong yield management through dynamic pricing, and cost discipline to support earnings growth in the 2021-2022 winter season. Boyne's operating results are highly seasonal, exposed to varying weather conditions and discretionary consumer spending. Environmental considerations in addition to exposure to adverse weather include the need to access large quantities of water, which may be challenging following periods of severe drought, and the vast amounts of forest land the company is responsible to properly operate and protect. However, the rating reflects Boyne's strong position as one of the largest operators in the North American ski industry, operating nine mountain resorts across North America. The company has a well-diversified geographic footprint, and roughly 20%-25% of its revenue relates to non-snowsports activities, which helps to somewhat mitigate its exposure to weather and operating seasonality. The North American ski industry has high barriers to entry and has exhibited resiliency even during weak economic periods, including the 2007- 2009 recession. The company's very good liquidity reflects its relatively healthy cash balance (expected to be about $120 million at year end 2021) and access to an undrawn $90 million revolver due 2026.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of Boyne from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Specifically, the weaknesses in Boyne's credit profile, including its exposure to discretionary consumer spending and social distancing measures have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the ongoing coronavirus pandemic and social distancing measures. Moody's expects the coronavirus concern for the ski industry will start to subside in 2021 once a growing share of the public has been vaccinated.Governance factors reflect that Boyne is a family-owned company and its CEO Stephen Kircher is the son of the founder. The family has a reinvestment orientation to build long-term value with low emphasis on shareholder distributions. As such, Moody's expects the company to favor a more conservative financial policy relative to private equity owned entities. Moody's does not anticipate that the company will pay any dividends over the next year or attempt to execute any large, transformational acquisitions. The company has demonstrated a willingness to utilize debt to fund acquisitions and investments, but Moody's expects leverage to fall when earnings on the investments are realized.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects Moody's view that Boyne's debt-to-EBITDA leverage will decline to about 5.0x by the end of 2022 due to earnings growth. The stable outlook also reflects Moody's expectation that Boyne will maintain very good liquidity over the next year that provides flexibility to reinvest and withstand potential operating challenges related to the coronavirus.The ratings could be upgraded if the company continues to grow organically while sustaining debt-to-EBITDA below 4.0x, retained cash flow (RCF) -to-net debt exceeds 17.5%, and the company maintains very good liquidity.The ratings could be downgraded if debt-to-EBITDA is sustained above 5.0x, or RCF-to-net debt falls below 7.5%. Weak reinvestment, visitation declines, or margin deterioration could also lead to a downgrade. In addition, if there is a material weakening of liquidity for any reason, or the company's financial policies become more aggressive, including undertaking a large debt-funded acquisition 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 and available at https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_1037985. Alternatively, 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 private and does not publicly disclose its financials. Boyne is also family owned by direct descendants of its founder. The company generated revenue of approximately $398 million for the fiscal year ended on December 31, 2020.REGULATORY DISCLOSURESFor 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.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. 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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.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 www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.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 www.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 www.moodys.com.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. Joanna O'Brien Asst Vice President - Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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