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
Six Flags Entertainment Corp.
Corporate Credit Rating BB/Stable/--
Six Flags Entertainment Corp.
$600M sr unsecd BB-
Recovery Rating 5