Rating Action: Moody's downgrades Hornblower's CFR to Caa2, outlook remains negative
Global Credit Research - 28 Jul 2020
New York, July 28, 2020 -- Moody's Investors Service, ("Moody's") downgraded Hornblower Sub, LLC's ("Hornblower") Corporate Family Rating to Caa2 from B3, Probability of Default Rating to Caa2-PD from B3-PD, and senior secured rating to Caa2 from B3. The outlook remains negative.
"The downgrade reflects Hornblower's weak liquidity driven by the travel restrictions and limitations on public gatherings in response to the coronavirus pandemic affecting most of Hornblower's business segments," stated Pete Trombetta, Moody's lodging and cruise analyst. "Moody's forecasts that the company's cash needs over the next two quarters, including cash refunds for canceled overnight cruises, may outpace cash inflows without a significant improvement in operations over that time period," added Trombetta. Moody's notes recent sponsor support in the form of a guarantee by its private equity owner -- Crestview Partners -- on a new $45 million revolver (fully drawn). Moody's expects that the sponsor will continue to support the company through this crisis.
The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Hornblower of the deterioration in credit quality it has triggered, given its exposure to ongoing travel restrictions and limitations on public gatherings, which has left it vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.
..Issuer: Hornblower Sub, LLC
.... Probability of Default Rating, Downgraded to Caa2-PD from B3-PD
.... Corporate Family Rating, Downgraded to Caa2 from B3
....Senior Secured Bank Credit Facility, Downgraded to Caa2 (LGD4) from B3 (LGD4)
..Issuer: Hornblower Sub, LLC
....Outlook, Remains Negative
Hornblower's credit profile is constrained by Moody's forecast of weak liquidity in the short term due to the impact from the spread of COVID-19 that has forced Hornblower to suspend operations in most of its business segments. The company has suspended most of its operations since March 2020 and significant limitations on public gatherings and travel restrictions are expected to remain in place at a minimum over the next two quarters. The company's credit profile also reflects its small scale in terms of absolute level of earnings and the company's earnings concentration in its concessions segment. Following the Entertainment Cruises acquisition, the company's concession segment -- which includes Alcatraz Cruises, Statue Cruises, Niagara Cruises and the NYC Ferry -- under normal operating conditions accounts for more than 40% of earnings. The Statue of Liberty/Ellis Island concession is currently up for renewal, and the loss of this contract would have a negative impact on operations until the company is able to redeploy the ships. The company benefits from the exclusive nature of multiyear contracts to operate ferry transportation services at two National Park Service locations (Alcatraz and Statue of Liberty/Ellis Island) and the Canadian side of the Niagara Falls for the Niagara Parks Commission. The company is also the exclusive operator of the NYC Ferry system which serviced about 6.3 million passengers in calendar year 2019. The company recently began operating under a new contract for its Alcatraz concession that runs through 2034.
The negative outlook reflects Moody's expectation that the company's earnings and cash flow will continue to be pressured in the coming quarters due to regulations in each of its segments related to social distancing guidelines which will make it heavily reliant on new external sources of liquidity to support the expected cash deficits.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The company's ratings could be downgraded if the probability of default increases for any reason. Positive rating action is unlikely in the near term given the negative outlook but the ratings could be upgraded if the company's operations return to a normalized level and liquidity is improved.
Through its various subsidiaries, Hornblower Holdco is a concessioner of ferry transportation services to the National Park Service for Alcatraz Island and the Statue of Liberty/Ellis Island and the Niagara Parks Commission for the Canadian side of Niagara Falls, and is the exclusive operator of the NYC Ferry system. The company also provides cruises & events service in 11 markets in the US, Canada and the UK, operates overnight cruises on the Mississippi River, the Pacific Northwest, and the Great Lakes, as well as provides maritime operations and management services to public and private clients. The company, which is headquartered in San Francisco, California, had gross revenues of about $687 million for the twelve month ending period March 31, 2020 and does not file public financials.
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.
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 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. 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 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_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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.
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Peter Trombetta Asst Vice President - 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
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