Rating Action: Moody's upgrades Herschend Entertainment's CFR to B1; outlook positiveGlobal Credit Research - 30 Aug 2022New York, August 30, 2022 -- Moody's Investors Service ("Moody's") upgraded Herschend Entertainment Company, LLC's ("Herschend") corporate family rating (CFR) and senior secured term loan rating to B1 from B2. The outlook was changed to positive from stable.The upgrade of the CFR and positive outlook reflect Moody's expectation that leverage will continue to decrease to the 3x range in 2023 driven by good consumer demand and additional investments in the parks and resort properties. Herschend's operating performance has improved above pre-pandemic levels and led to a reduction in leverage to 3.5x as of Q2 2022 driven by ongoing consumer demand and pricing initiatives which are likely to continue through 2023.A summary of today's actions are as follows:Upgrades:..Issuer: Herschend Entertainment Company, LLC.... Corporate Family Rating, Upgraded to B1 from B2.... Probability of Default Rating, Upgraded to B1-PD from B2-PD....Senior Secured Term Loan B, Upgraded to B1 (LGD3) from B2 (LGD3)Outlook Actions:..Issuer: Herschend Entertainment Company, LLC....Outlook, Changed To Positive From StableRATINGS RATIONALEThe B1 CFR reflects Moody's view that Herschend's revenue and EBITDA will continue to improve through 2023 driven by consumer demand, investments in new attractions and the expansion of resort properties. The acquisition of Callaway Gardens and Resorts is modest in size, but likely to support additional growth. Herschend benefits from its three amusement parks including Dollywood, Silver Dollar City, and Wild Adventures, in addition to water parks, aquariums, adventure tours, dinner shows, lodging, and the Harlem Globetrotters. While all of Herschend's businesses were significantly impacted by the pandemic, the different businesses reduce risks relative to companies with less diversified entertainment offerings. Herschend's attractions are also largely located in warmer climates or indoors which slightly reduces seasonality and offers a longer operating season. The ownership of significant amounts of land provide Herschend the opportunity for future expansion or sources of liquidity if needed.Herschend has concentrated exposure to Tennessee, Missouri, and Georgia, which elevates risks to performance, although the Harlem Globetrotters, Pink Jeep, and the aquarium businesses offer a degree of diversification. Herschend competes for discretionary consumer spending from an increasingly wide variety of other leisure and entertainment activities as well as cyclical discretionary consumer spending. The parks are seasonal and sensitive to weather conditions, terrorism, public health issues as well as other disruptions outside of the company's control.ESG CONSIDERATIONSHerschend's ESG Credit Impact Score is moderately-negative (CIS-3). The company has reduced leverage significantly following the pandemic and Moody's expects Herschend to maintain relatively modest leverage levels going forward. Herschend is a private, family owned company.The positive outlook reflects Moody's expectation that operating results will continue to improve driven by consumer demand for out of home entertainment and significant investments which will reduce leverage to the 3x range. High inflation rates and slower economic growth may moderately elevate volatility in operating performance in the near term, but Moody's expects revenue and profitability will improve over time as attendance grows. Herschend will continue to generate good operating cash flow which will fund substantial investments in resort properties and rides which will support higher attendance and average revenue per guest.Moody's expects Herschend to maintain adequate liquidity in the near term supported by approximately $203 million of pro forma cash on the balance sheet as of Q2 2022. However, the company currently does not have access to a revolving credit facility. Herschend generates good free cash flow, but higher levels of capex spend in the near term will significantly reduce free cash flow through 2023. Capex levels will likely decline over time to approximately 9% of revenue as near term projects are completed. The parks and other entertainment assets are divisible and could be sold individually, but all of the company's assets are pledged to the credit facility (except for joint ventures such as Dollywood) and asset sales trigger 100% mandatory repayment if proceeds are not reinvested within 12 months. Herschend may consider additional acquisitions going forward. The term loan is covenant lite.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSA ratings upgrade could occur if leverage was sustained under 3x with a good liquidity profile, including free cash flow as a percentage of debt in the high single percentage range. Confidence that the financial policy going forward would be consistent with a higher rating would also be required.A ratings downgrade could occur if leverage was maintained above 4.5x or liquidity deteriorates. A sizable decrease in cash or sustained negative free cash flow would lead to negative ratings pressure.Herschend Entertainment Company, LLC (the lead borrower), and co-borrowers Herschend Adventure Holdings, LLC, and Harlem Globetrotters International, Inc. operate a portfolio of consumer entertainment attraction including three amusement parks, three waterparks, three aquariums, adventure tours (including Pink Jeep), dinner shows, lodging, and the Harlem Globetrotters. Herschend is a privately owned company by members of the Herschend family. Herschend's revenue was over $650 million as of LTM Q2 2022.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. 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