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Moody's Investors Service Inc.

Moody's Confirms Herschend Entertainment Company's Ratings Despite Negative Outlook

Strategic Insights

— 2 min read

Moody's Ratings has confirmed Herschend Entertainment Company, LLC's (Herschend) current ratings, including its Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating (PDR), and Ba3 senior secured term loan B rating, despite a negative outlook. The confirmation comes after the company's proposed acquisition of Palace Entertainment's U.S. assets from Piolin II S.a.r.l (Parques Reunidos) was announced. Moody's views the combined company's improved geographic diversification, reduced earnings concentration, and greater scale as strengthening its credit profile, but also notes the risks associated with integrating Palace's assets, managing high capital expenditure needs, and achieving long-term financial leverage targets.

Key Takeaways:

  • Herschend's Ba3 CFR reflects its high leverage pro forma for the Palace acquisition and seasonal operations exposed to exogenous events like weather, geopolitics, and accidents.
  • The company's diversified portfolio of entertainment properties with high barriers to entry and improved geographic diversification and scale mitigate the impact of seasonality and volatility.
  • Moody's expects leverage to increase to 4.5x at the end of 2025 pro forma for the acquisition, but will decline to 3.8x (or around 3.2x on net basis) by the end of 2027.
  • Herschend has good liquidity, supported by $193 million of cash on the balance sheet pro forma for the transaction and lack of debt maturities until 2028.
  • The company has a history of making opportunistic and strategic acquisitions of location-based entertainment assets and successful integration in its existing portfolio.
  • The proposed acquisition of Palace Entertainment's U.S. operations will increase the company's scale, reduce revenue concentration by asset, and expand Herschend's regional footprint.
  • Herschend plans to use the proceeds from the new term loan to finance the Palace acquisition, refinance its existing senior secured term loan B, and pay transaction fees and expenses.

Statistics:

  • Herschend's current Moody's adjusted leverage is 2.6x on a gross basis and 1.1x on net basis (as of LTM Q3 2024).
  • Pro forma for the Palace acquisition, Moody's expects leverage to increase to 4.5x at the end of 2025 and decrease to 3.8x by the end of 2027.
  • The combined company's financial policy going forward will remain conservative, with revenue and EBITDA expected to continue improving driven by consumer demand and investments in new attractions.
  • Herschend has $193 million of cash on the balance sheet pro forma for the transaction and lacks debt maturities until 2028.

Sources:

  • Moody's Ratings, "Herschend Entertainment Company, LLC", 26 March 2025, https://ratings.moodys.com/
  • Moody's Ratings, "Business and Consumer Services", November 2021, https://ratings.moodys.com/rmc-documents/356424
  • Moody's Ratings, "Rating Methodologies", https://ratings.moodys.com

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