U.S. markets close in 36 minutes
  • S&P 500

    3,251.75
    -58.36 (-1.76%)
     
  • Dow 30

    26,315.89
    -343.22 (-1.29%)
     
  • Nasdaq

    10,875.30
    -310.30 (-2.77%)
     
  • Russell 2000

    1,530.81
    -30.77 (-1.97%)
     
  • Crude Oil

    35.48
    -0.69 (-1.91%)
     
  • Gold

    1,880.00
    +12.00 (+0.64%)
     
  • Silver

    23.68
    +0.32 (+1.37%)
     
  • EUR/USD

    1.1651
    -0.0027 (-0.23%)
     
  • 10-Yr Bond

    0.8600
    +0.0250 (+2.99%)
     
  • GBP/USD

    1.2953
    +0.0030 (+0.23%)
     
  • USD/JPY

    104.6700
    +0.0600 (+0.06%)
     
  • BTC-USD

    13,500.13
    +201.28 (+1.51%)
     
  • CMC Crypto 200

    263.78
    +0.14 (+0.05%)
     
  • FTSE 100

    5,577.27
    -4.48 (-0.08%)
     
  • Nikkei 225

    22,977.13
    -354.81 (-1.52%)
     

SeaWorld Parks & Entertainment, Inc. -- Moody's affirms SeaWorld's B3 CFR and assigns Caa2 rating to proposed second priority secured notes; outlook negative

·19 mins read

Rating Action: Moody's affirms SeaWorld's B3 CFR and assigns Caa2 rating to proposed second priority secured notes; outlook negative

Global Credit Research - 29 Jul 2020

New York, July 29, 2020 -- Moody's Investors Service, ("Moody's") affirmed SeaWorld Parks & Entertainment, Inc.'s (SeaWorld) B3 corporate family rating and assigned a Caa2 rating to the proposed $400 million second priority senior secured notes due 2025. The existing senior secured credit facility and secured notes were upgraded to B2 from B3 and the probability of default rating (PDR) was upgraded to B3-PD from Caa1-PD. The outlook remains negative.

Net proceeds of the second priority secured note will be used primarily to repay $311 million outstanding on the revolving credit facility due 2023 and add cash to the balance sheet. The transaction increases pro forma leverage to 6x from 5.8x as of Q1 2020 (which includes the $228 million senior secured notes issued in April 2020) and raises annual interest expense by approximately $40 million depending on final pricing. Liquidity will improve as SeaWorld will have access to approximately $465 million of cash and an undrawn $332.5 million revolver as of Q2 2020. Moody's expects that the enhanced liquidity will help SeaWorld manage through 2021 even if the pandemic continues to disrupt operation of the parks.

The upgrade of the first lien credit facility and notes reflects the addition of second lien debt which provides loss absorption cushion. With the dual class debt structure, the senior secured credit facilities rank senior to the second lien debt, resulting in a one notch lift above the B3 CFR. The PDR was also upgraded to reflect an average family recovery of 50%, as opposed to the previous 65% recovery assumption when there was only one class of first lien debt. While cash and revolver availability will improve following the transaction, the speculative grade liquidity (SGL) rating remains unchanged overall at SGL-3.

Affirmations:

..Issuer: SeaWorld Parks & Entertainment, Inc.

.... Corporate Family Rating, Affirmed B3

Upgrades:

..Issuer: SeaWorld Parks & Entertainment, Inc.

.... Probability of Default Rating, Upgraded to B3-PD from Caa1-PD

....Senior Secured Bank Credit Facility, Upgraded to B2 (LGD3) from B3 (LGD3)

....Senior Secured Regular Bond/Debenture, Upgraded to B2 (LGD3) from B3 (LGD3)

Assignments:

..Issuer: SeaWorld Parks & Entertainment, Inc.

....Senior Secured 2nd priority Regular Bond/Debenture, Assigned Caa2 (LGD5)

Outlook Actions:

..Issuer: SeaWorld Parks & Entertainment, Inc.

....Outlook, Remains Negative

RATINGS RATIONALE

The B3 CFR reflects the negative impact of the coronavirus outbreak on SeaWorld's ability to operate its parks, which Moody's projects will lead to substantially higher leverage and weigh on liquidity for as long as the parks continued to be constrained by the pandemic. Moody's projects SeaWorld will have more than enough liquidity to manage through 2021 even if normal operation of the parks are disrupted or perform well below historical levels for a prolonged period of time. SeaWorld has concentrated exposure to Florida and to a lesser extent California, which elevates risks to performance. In addition, some of the company's larger parks are more likely to face competition from destination parks. While SeaWorld has focused on attracting guests from nearby markets in recent years, guest traffic from national and international customers are likely to remain weak and take longer to recover due to the effects of the global pandemic on travel and leisure activities. Attendance levels at parks that are open are projected to remain well below normal levels due to the need to maintain social distancing and additional safety pre-cautions due to the pandemic. Attendance may also be negatively affected by consumer reluctance to engage in group activities in the near term. Cost saving efforts to support liquidity may also slow the rate of improvement in performance.

SeaWorld 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 highly seasonal and sensitive to weather conditions, changes in fuel prices, terrorism, public health issues (such as the coronavirus) as well as other disruptions outside of the company's control. Pro forma debt to EBITDA leverage is 6x as of Q1 2020 (including Moody's standard adjustments) and is expected to increase materially as parks operate on a limited basis or remain closed for a significant portion of the summer operating season. There is also limited visibility on when SeaWorld's parks in California will be able to open as a result of the pandemic.

SeaWorld benefits from its portfolio of parks in key markets including SeaWorld, Busch Gardens, Sesame Place as well as separately branded parks that typically generate meaningful annual attendance. SeaWorld faces negative publicity due to its orca attractions, but performance improved materially prior to the coronavirus outbreak after several years of declines. Significant expenditures on new rides and attractions that were scheduled to open in 2020, are expected to support performance after the rides are opened and lessen the need for capital expenditures in the near future. Moody's expects performance in 2021 to improve and for leverage levels to be in the in the 6x range by the end of 2021, absent any additional extended park closures.

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. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The credit profile reflects the impact on SeaWorld of the deterioration in credit quality the pandemic has triggered, given the company's exposure to consumer entertainment. This has left the company vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

A governance impact that Moody's considers is the resignation of SeaWorld's past two CEOs after a brief tenure with the company. The CFO will act as interim CEO at least through the resumption of operations at all the company's theme parks. The Board will review the CEO role after operations resume on a normalized basis. SeaWorld is a publicly traded company listed on the NYSE.

The negative outlook reflects the impact of the coronavirus outbreak which has limited SeaWorld's ability to operate its amusement parks and Moody's expectation of operating losses and negative free cash flow in 2020. The uncertainty over the depth and duration of the pandemic will continue to pressure the company's liquidity position and lead to materially higher leverage levels in 2020. A weak economic environment, the need for consumers to maintain social distancing, and reduced travel activity will continue to weigh on performance for parks that are open.

SeaWorld's SGL-3 rating reflects Moody's expectation of materially negative free cash flow in 2020, but the company will have about $465 million of cash and an undrawn $332.5 million revolver due 2023 pro forma for the transaction as of Q2 2020. Moody's expects liquidity will deteriorate during the rest of 2020 from negative free cash flow, but remain adequate through 2021 even if the parks are unable to operate as planned for an extended period. Excess cash is likely to be used to repay debt after the affect of the pandemic subsides and park performance improves. SeaWorld spent $195 million on capex in 2019 on new rides and attractions, but Moody's projects SeaWorld will be focused on managing liquidity and will reduce capex spending materially in the near term. The large number of new rides and attractions which have not been open to the public, reduce the need for capex in the near term and may support attendance when the parks open. The parks are divisible and could be sold individually, but all of the company's assets are pledged to the credit facility and asset sales trigger 100% mandatory repayment if proceeds are not reinvested within 12 months.

The term loan is covenant light, but the revolver is subject to a springing maximum first lien secured leverage covenant ratio of 6.25x when greater than 35% is drawn. SeaWorld executed an amendment to exempt the company from the financial covenant through 2021 and allow the use of quarterly Adjusted EBITDA from the last three quarters of 2019 in place of the last three quarters of 2021 beginning in Q1 of 2022. SeaWorld will be subject to a minimum liquidity test of a minimum of $75 million until the earlier of Q3 2022 or when the company starts using actual Adjusted EBITDA in the covenant calculation.

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

A ratings upgrade is unlikely as long as the coronavirus outbreak limits the ability to operate SeaWorld's' amusement parks. The outlook could change to stable if the parks are projected to operate as scheduled and SeaWorld maintains a good liquidity profile with leverage levels maintained below 6.5x. Comfort that there are not any significant legislative, legal, regulatory, or activist actions that would materially impact operations would also be required. An upgrade could occur if the parks were operated as scheduled and Moody's expected leverage to be sustained under 6x, with positive revenue and EBITDA growth, and an adequate liquidity profile.

The ratings could be downgraded due to ongoing cash usage or poor operating performance that led to an elevated risk of default. Leverage sustained above 8x, or an EBITDA minus capex to interest ratio below 1x could also lead to a downgrade. Concern that SeaWorld may not be able to obtain an amendment to its covenants if needed in the future would also lead to a downgrade.

SeaWorld Entertainment, Inc., through its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (SeaWorld), own and operate twelve amusement and water parks located in the US. Properties include SeaWorld (Orlando, San Diego and San Antonio), Busch Gardens (Tampa and Williamsburg) and Sesame Place (Langhorne, PA in addition to one new location in the near term). The Blackstone Group (Blackstone) acquired SeaWorld in 2009 in a leverage buyout for $2.4 billion (including fees). SeaWorld completed an initial public offering in 2013 and Blackstone exited its ownership position in 2017. SeaWorld's annual revenue was approximately $1.3 billion as of Q1 2020.

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.

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 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.

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.

Scott Van den Bosch VP - Senior Credit Officer 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 Stephen Sohn 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

© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

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 JPY125,000 to approximately JPY250,000,000.

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

​​​​​​​​