(Alliance News) - Moody's Investors Service on Monday assigned a B1 corporate family rating and B1-PD probability of default rating to Merlin Entertainments PLC suitor Motion Midco Ltd.
Moreover, Moody's issued Ba3 ratings to the planned EUR and USD term loan Bs and GBP400 million revolving credit facility which due 2026 and issued by Motion Finco Sarl.
Moody's additionally gave a B3 rating to proposed USD and EUR senior unsecured notes to be issued by Motion Bondco DAC and due 2027. The outlook on all the above entities is stable.
Finally, Moody's downgraded its rating on the existing USD400 million bond issued by Merlin and due 2026 to Ba3 from Ba2 Merlin's corporate family rating, as well as its probability of default rating are unchanged at Ba2 and Ba2-PD respectively. The Ba2 rating on its EUR700 million notes due 2022 is also unchanged.
The term loan and bond proceeds will mostly help to repay existing debt, and as partial fincnaing for the Merlin buy being undertaken by a consortium. The consortium companies are "KIRKBI, Blackstone and Canada Pension Plan Investment Board".
Egor Nikishin, a Moody's lead analyst for Merlin, said: "The B1 rating assigned to Motion Midco Ltd is two notches lower than the existing Merlin's CFR, which reflects significantly more levered capital structure post-acquisition. The rating is weakly positioned at this category and is based on our expectation that the company will achieve meaningful earnings growth over the next 12-18 months, which will be supported by the planned opening of LEGOLAND parks. Merlin's significant scale and diversification, both geographical and by type of attractions, improves stability of earnings in an industry which is otherwise vulnerable to external shocks, ranging from weather to terrorist attack."
Moody's said the rating is supported by Merlin's "internationally recognised brand names" like SEA LIFE and LEGOLAND. The diversity of Merlin's theme parks and midway attraction, as well as its indoor versus outdoor activities mix, were also a factor.
However, Merlin's Moody's gross adjusted leverage is "very high" at outset, about 7.5 times, and deleveragign depend on Merlins' growth strategy as Moody's is forecasting " limited debt amortisation in the first years".
In addition, Merlin's interest coverage is also set to deteriorate with the Moody's adjusted earnings before interest, depreciation, taxation, and amortisation to interest ratio weakening to 1.5 times pro forma under the new structure from 3.3 times in 2018.
Moody's said its stable outlook is predicated on the "expectation that the company will likely continue to grow earnings but that free cash flow generation will be limited, owing to investments in its growth strategy. It also reflects the rating agency's expectation that Merlin will de-lever towards 7 times over the next 12-18 months, open new LEGOLAND parks in line with the plan, maintain positive like for like sales growth and stable margins. The outlook also reflects the company's strong business profile including its good market position and diversification."
Shares in Merlin closed broadly flat at 453.00 pence in London on Monday.
By Anna Farley; annafarley@alliancenews.com
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