Merlin Entertainments has had its credit rating downgraded due to high cash use, S&P Global Ratings have said.
S&P downgraded the company to a CCC+ rating, which is used to indicate that a business is dependent on favourable conditions to meet its financial commitments.
Bloomberg reported on Wednesday that Merlin was suffering “depressed” earnings and significant interest expenses on loans.
The British company reported £492 million pre-tax losses for 2024, which was widely attributed to a loss in asset and estate values.
This week’s reports suggest that Merlin could run low on free cash reserves inside a year.
“Persistent high cash burn could lead to insufficient liquidity after 12 months, absent any cash injection,” S&P analysts wrote, noting that the company’s capital structure was also “unsustainable.”
UK ‘a source of worry’
In response, Merlin said it had been impacted by “heavy competitor discounting” in North America.
Bloomberg reported that a “softening of demand” was also present in the UK.
Summer marketing of Merlin’s UK attractions has been at unprecedented levels, as the company attempts to retain revenue streams.
The company has targeted consumers with multiple deals, including free return visits, but the effect is widely understood to have been limited.
Chris Telfer, partner and portfolio manager at Athlone Investment Management, said: “In Merlin’s case you are exposed to the UK consumer, and consumer spending has been a source of worry.”
S&P said that Merlin was spending significantly on new investments and paying more interest on renegotiated loans.
Because of this, analysts think the company could lose about £200 million in free cash in 2025, which could affect its ability to manage cash flow going forward.