Score Motion: Moody’s assigns Caa1 CFR to Cirque du Soleil; outlook destructive
International Credit score Analysis – 11 Dec 2020
$616 million of recent rated debt
Toronto, December 11, 2020 — Moody’s Buyers Service, (“Moody’s”) assigned a Caa1 company household score (CFR) and a Caa1-PD likelihood of default score to Cirque du Soleil Holding USA NewCo, Inc. (“Cirque du Soleil”). On the similar time, Moody’s assigned a B2 score to its $316 million senior secured first lien time period mortgage due November 2025 and a Caa2 score to its $300 million second lien time period mortgage due November 2027. Cirque du Soleil Canada Inc. is a co-borrower. The outlook is destructive.
Company Household Score, Assigned Caa1
Chance of Default Score, Assigned Caa1-PD
$316 million Senior Secured First Lien Time period Mortgage due in 2025, Assigned B2 (LGD2)
$300 million Senior Secured Second Lien Time period Mortgage due in 2027, Assigned Caa2 (LGD5)
Outlook Motion: Outlook, Assigned as Destructive RATINGS RATIONALE
Cirque du Soleil (Caa1 destructive) is constrained by: (1) execution dangers round present redeployment tied to financial uncertainty and potential COVID-19-related delays in 2021; (2) weak liquidity; (3) leverage sustained above 10x and destructive free money movement via 2022; and (4) substantial focus in Las Vegas, which can account for near half of EBITDA in 2022. The corporate advantages from: (1) distinctive model recognition and pricing mannequin focusing on greater earnings households; (2) a powerful operational monitor file and administration’s ample expertise creating, operating and buying exhibits; (3) the flexibility to leverage a portfolio of long-lived exhibits requiring minimal investments because it rebuilds scale; and (4) a partnership mannequin for resident exhibits minimizing capital outlays and supporting operational stability.
The destructive outlook displays weakening liquidity into 2022 and execution dangers across the tempo of present redeployment.
Cirque du Soleil’s liquidity is weak. As of December 31, 2020, we estimate that money available will whole about $160 million, in comparison with makes use of of about $120 million in destructive free money movement over the next twelve months ended December 2021. Cirque du Soleil has no time period mortgage amortizations. By early 2022, we estimate that Cirque’s money available will decline to a minimal working money steadiness of about $10 million; likewise, any deviation from its marketing strategy or postponement of present revenues would compromise Cirque’s means to proceed working within the absence of further sources of liquidity, reminiscent of a revolving credit score facility. Though the time period mortgage settlement permits Cirque to lift as much as $55 million below a revolving credit score facility (and $30 million in letters of credit score), there aren’t any commitments thus far and we won’t give credit score for these potential sources of future liquidity till they’re made out there. The corporate shouldn’t be topic to any monetary covenants. Cirque du Soleil has a restricted capability to promote some property to lift money with a permitted reinvestment interval of twelve months.
The primary and second lien senior secured time period loans are issued by Cirque du Soleil Holding USA NewCo, Inc. and co-borrower Cirque du Soleil Canada Inc. and assured by the highest holdco Spectacle Bidco Holdings Inc. The $316 million first lien time period mortgage due November 2025 is rated B2, two notches above the Caa1 company household score, reflecting its senior place within the capital construction. The B2 end result incorporates a one-notch override on the Loss-Given Default mannequin end result of B1 given the allowance below the phrases of the credit score settlement for the issuance of as much as $55 million in a revolving credit score facility that will have precedence rating senior to the primary lien time period mortgage, and our evaluation of low asset safety. The $300 million second lien PIK time period mortgage due November 2027 is rated Caa2, one notch beneath the company household score, reflecting its junior place and rating behind the primary lien debt.
The rated time period loans shouldn’t have any monetary covenants. The primary lien time period mortgage doesn’t present incremental facility capability however does allow the issuance of different debt together with: (1) a revolving credit score facility for as much as $55 million, which might rank senior to the primary lien debt; and (2) a letter of credit score facility for as much as $30 million, rating pari passu with the primary lien debt. All subsidiaries are restricted and any wholly-owned subsidiary holding greater than 2.5% of whole property is obligated by covenant to turn into a guarantor, controlling collateral leakage by precluding property transfers to unrestricted subsidiaries and limiting asset transfers to non-guarantors. Solely wholly-owned subsidiaries should act as guarantors, however ensures will not be robotically launched solely as a result of such subsidiaries stop to be wholly-owned, decreasing the chance of future assure releases. The credit score agreements requires that 100% of internet money proceeds be used to repay the credit score facility, if not reinvested inside twelve months, with no-step-downs on the prepayment/reinvestment requirement.
Cirque du Soleil will stay uncovered to social dangers arising from the coronavirus outbreak throughout 2021 because it pertains to the well being of staff and audiences because it ramps up exhibits starting in Q2. Different ongoing social dangers embody the corporate’s publicity to shifting demographics and client preferences mixed with the comparatively high-priced, highly-discretionary nature of its exhibits. The corporate addresses these dangers via efforts to stay finely attuned to leisure preferences amongst its buyer base within the growth of its present content material. Cirque du Soleil can also be uncovered to reputational dangers related to worker security on condition that performers usually perform bodily harmful acts.
Governance concerns embody Cirque du Soleil’s possession by collectors, of which there’s a majority share of personal fairness sponsors which can introduce aggressive monetary insurance policies over time, together with the upkeep of elevated leverage.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The scores might be downgraded if liquidity weakens, or if the corporate is unlikely to attain secure working efficiency.
The scores might be upgraded if adjusted debt to EBITDA developments in direction of 7.5x (10.8x forecast for 2022), EBITA to curiosity protection is sustained above 1.0x (0.3x forecast for 2022), EBITA margins are sustained above 10% (2.5% forecast for 2022), and if scale will increase with revenues surpassing $500 million ($670 million forecast for 2022).
The principal methodology utilized in these scores was Enterprise and Shopper Service Trade revealed in October 2016 and out there at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Score Methodologies web page on www.moodys.com for a replica of this system.
Cirque du Soleil is a supplier of distinctive, reside acrobatic theatrical performances. Starting in 2021, the corporate will relaunch 6 resident exhibits and 6 touring exhibits. In 2021, Moody’s expects the corporate to generate about $180 million in revenues. Cirque du Soleil is owned primarily by a fragmented group of collectors (represented by prior debtholders), together with personal fairness traders Catalyst Capital, Sound Level Capital, CBAM Companions and Profit Road Companions .
For additional specification of Moody’s key score assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure type. Moody’s Score Symbols and Definitions may be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For scores issued on a program, collection, class/class of debt or safety this announcement supplies sure regulatory disclosures in relation to every score of a subsequently issued bond or observe of the identical collection, class/class of debt, safety or pursuant to a program for which the scores are derived completely from present scores in accordance with Moody’s score practices. For scores issued on a assist supplier, this announcement supplies sure regulatory disclosures in relation to the credit standing motion on the assist supplier and in relation to every specific credit standing motion for securities that derive their credit score scores from the assist supplier’s credit standing. For provisional scores, this announcement supplies sure regulatory disclosures in relation to the provisional score assigned, and in relation to a definitive score which may be assigned subsequent to the ultimate issuance of the debt, in every case the place the transaction construction and phrases haven’t modified previous to the project of the definitive score in a way that will have affected the score. For additional data please see the scores tab on the issuer/entity web page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit score assist from the first entity(ies) of this credit standing motion, and whose scores might change on account of this credit standing motion, the related regulatory disclosures might be these of the guarantor entity. Exceptions to this method exist for the next disclosures, if relevant to jurisdiction: Ancillary Companies, Disclosure to rated entity, Disclosure from rated entity.
The scores have been disclosed to the rated entity or its designated agent(s) and issued with no modification ensuing from that disclosure.
These scores are solicited. Please seek advice from Moody’s Coverage for Designating and Assigning Unsolicited Credit score Rankings out there on its web site www.moodys.com.
Regulatory disclosures contained on this press launch apply to the credit standing and, if relevant, the associated score outlook or score assessment.
Moody’s basic rules for assessing environmental, social and governance (ESG) dangers in our credit score evaluation may be discovered at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
No less than one ESG consideration was materials to the credit standing motion(s) introduced and described above.
The International Scale Credit score Score on this Credit score Score Announcement was issued by considered one of Moody’s associates outdoors the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Fundamental 60322, Germany, in accordance with Artwork.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit score Score Companies. Additional data on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is offered on www.moodys.com.
Please see www.moodys.com for any updates on adjustments to the lead score analyst and to the Moody’s authorized entity that has issued the score.
Please see the scores tab on the issuer/entity web page on www.moodys.com for added regulatory disclosures for every credit standing.
Whitney Leavens Analyst Company Finance Group Moody's Canada Inc. 70 York Road Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653 Donald S. Carter, CFA MD - Company Finance Company Finance Group JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653 Releasing Workplace: Moody's Canada Inc. 70 York Road Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653
© 2020 Moody’s Company, Moody’s Buyers Service, Inc., Moody’s Analytics, Inc. and/or their licensors and associates (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 data contained herein is obtained by MOODY’S from sources believed by it to be correct and dependable. Due to the potential of human or mechanical error in addition to different components, nonetheless, all data contained herein is offered “AS IS” with out guarantee of any variety. MOODY’S adopts all crucial measures in order that the data it makes use of in assigning a credit standing is of enough high quality and from sources MOODY’S considers to be dependable together with, when acceptable, unbiased third-party sources. Nevertheless, MOODY’S shouldn’t be an auditor and can’t in each occasion independently confirm or validate data obtained within the score course of or in getting ready its Publications.
To the extent permitted by legislation, MOODY’S and its administrators, officers, staff, brokers, representatives, licensors and suppliers disclaim legal responsibility to any individual or entity for any oblique, particular, consequential, or incidental losses or damages in anyway arising from or in reference to the data contained herein or the usage of or lack of ability to make use of any such data, even when MOODY’S or any of its administrators, officers, staff, brokers, representatives, licensors or suppliers is suggested prematurely of the potential of such losses or damages, together with however not restricted to: (a) any lack of current or potential income or (b) any loss or injury arising the place the related monetary instrument shouldn’t be the topic of a specific credit standing assigned by MOODY’S.
To the extent permitted by legislation, MOODY’S and its administrators, officers, staff, brokers, representatives, licensors and suppliers disclaim legal responsibility for any direct or compensatory losses or damages brought on to any individual or entity, together with however not restricted to by any negligence (however excluding fraud, willful misconduct or another sort of legal responsibility that, for the avoidance of doubt, by legislation can’t be excluded) on the a part of, or any contingency inside or past the management of, MOODY’S or any of its administrators, officers, staff, brokers, representatives, licensors or suppliers, arising from or in reference to the data contained herein or the usage of or lack of ability to make use of any such data.
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 Buyers Service, Inc., a wholly-owned credit standing company subsidiary of Moody’s Company (“MCO”), hereby discloses that almost all issuers of debt securities (together with company and municipal bonds, debentures, notes and business paper) and most popular inventory rated by Moody’s Buyers Service, Inc. have, previous to project of any credit standing, agreed to pay to Moody’s Buyers Service, Inc. for credit score scores opinions and companies rendered by it charges starting from $1,000 to roughly $2,700,000. MCO and Moody’s traders Service additionally preserve insurance policies and procedures to deal with the independence of Moody’s Buyers Service credit score scores and credit standing processes. Data concerning sure affiliations which will exist between administrators of MCO and rated entities, and between entities who maintain credit score scores from Moody’s Buyers Service and have additionally publicly reported to the SEC an possession curiosity in MCO of greater than 5%, is posted yearly at www.moodys.com below the heading “Investor Relations — Company Governance — Director and Shareholder Affiliation Coverage.”
Extra phrases for Australia solely: Any publication into Australia of this doc is pursuant to the Australian Monetary Companies License of MOODY’S affiliate, Moody’s Buyers Service Pty Restricted ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as relevant). This doc is meant to be offered solely to “wholesale purchasers” inside the that means of part 761G of the Companies Act 2001. By persevering with to entry this doc from inside Australia, you characterize to MOODY’S that you’re, or are accessing the doc as a consultant of, a “wholesale consumer” and that neither you nor the entity you characterize will straight or not directly disseminate this doc or its contents to “retail purchasers” inside the that means of part 761G of the Companies Act 2001. MOODY’S credit standing is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the fairness securities of the issuer or any type of safety that’s out there to retail traders.
Extra phrases for Japan solely: Moody’s Japan Ok.Ok. (“MJKK”) is a wholly-owned credit standing company subsidiary of Moody’s Group Japan G.Ok., which is wholly-owned by Moody’s Abroad Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan Ok.Ok. (“MSFJ”) is a wholly-owned credit standing company subsidiary of MJKK. MSFJ shouldn’t be a Nationally Acknowledged Statistical Score Group (“NRSRO”). Due to this fact, credit score scores assigned by MSFJ are Non-NRSRO Credit score Rankings. Non-NRSRO Credit score Rankings are assigned by an entity that’s not a NRSRO and, consequently, the rated obligation won’t qualify for sure kinds of therapy below U.S. legal guidelines. MJKK and MSFJ are credit standing businesses registered with the Japan Monetary Companies Company and their registration numbers are FSA Commissioner (Rankings) No. 2 and three respectively.
MJKK or MSFJ (as relevant) hereby disclose that almost all issuers of debt securities (together with company and municipal bonds, debentures, notes and business paper) and most popular inventory rated by MJKK or MSFJ (as relevant) have, previous to project of any credit standing, agreed to pay to MJKK or MSFJ (as relevant) for credit score scores opinions and companies rendered by it charges starting from JPY125,000 to roughly JPY250,000,000.
MJKK and MSFJ additionally preserve insurance policies and procedures to deal with Japanese regulatory necessities.