TEXT-S&P rates Six Flags Entertainment Corp.'s proposed notes
Dec 5 - Standard & Poor's Ratings Services today assigned Grand Prairie, Texas-based theme park operator Six Flags Entertainment Corp.'s (SFEC) proposed $600 million senior unsecured notes a 'BB-' issue-level rating (one notch lower than our 'BB' corporate credit rating on the company). The recovery rating on this debt is '5', indicating our expectation for modest (10% to 30%) recovery for lenders in the event of a payment default. The company will use the proceeds from the notes to fund increased levels of restricted payments in 2013, which are allowed following a recent amendment to its senior secured credit agreement, and to refinance some of its existing term debt. Our 'BB' corporate credit rating and stable rating outlook remain unchanged. However, the notes issuance reflects a more aggressive posture from management regarding financial policy. While SFEC had cushion in its adjusted leverage relative to our 4x threshold for a 'BB' rating prior to this transaction, we expect leverage to increase to closer to 4x pro forma for the notes issuance. Therefore, following this transaction, any deterioration in the outlook for business trends or any subsequent debt financed distribution (while leverage remains elevated) could result in rating downside pressure. Our rating currently incorporates our expectation for low-single-digit percentage growth in revenue and EBITDA in 2013. Our 'BB' corporate credit rating on SFEC reflects our assessment of the company's business risk profile as "fair" and our assessment of its financial risk profile as "significant," according to our criteria. Our assessment of SFEC's business risk profile as fair reflects the company's vulnerability to adverse weather conditions, a risk exacerbated by the highly seasonal nature of the business given the majority of EBITDA is generated in the second and third quarters. The company's reliance on consumer discretionary spending as well as its relatively high capital expenditure requirements also weigh on our business risk assessment. SFEC's good geographic diversity, relatively high barriers to entry in the industry, and our belief that unadjusted EBITDA (including third-party interests in the EBITDA of SFEC) margin will continue to remain around the low- to mid-30% area, somewhat temper the above factors. Our assessment of SFEC's financial risk profile as significant reflects our belief that--pro forma the proposed incremental debt--SFEC will maintain adjusted leverage (based on EBITDA excluding third-party interests) around 4x or below over the intermediate term. Our financial risk profile assessment as significant also reflects our expectation that, notwithstanding additional interest related to the proposed notes, adjusted EBITDA coverage of interest will remain above 5x and that adjusted funds from operations (FFO) to total debt will be maintained in the low-20% area, both good for the rating. RELATED RESEARCH AND CRITERIA -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008 RATINGS LIST Ratings Unchanged Six Flags Entertainment Corp. Corporate Credit Rating BB/Stable/-- New Ratings Six Flags Entertainment Corp. $600M sr unsecd BB- Recovery Rating 5
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