Merlin Entertainments’ credit rating has been further downgraded amidst analyst conclusions of under-investment and “tired, less relevant” assets.
On Tuesday, the Moody’s agency lowered Merlin’s credit rating to Caa1, a speculative investment grade known as a ‘junk’ rating.
Merlin has recently attempted to offload many its Sea Life attractions, but no deals could be agreed.
It sold off its Lego & Legoland Discovery Centres for £200 million earlier this year.
Moody’s said of Merlin: “Maintaining a sustainable capital structure will be challenging without further asset disposals or shareholder support.”
Creditors are expecting the company and its debt to be restructured, despite recent efforts to centralise all operations across theme parks, city-based attractions, and Legoland parks.
Heavy debt
Moody’s Caa1 rating is typically allocated to companies with weak cash flow, heavy debt, and/or distressed operations.
Back in August, the S&P agency downgraded Merlin to a CCC+ rating, which is used to indicate that a business is dependent on favourable conditions to meet its financial commitments.
£630 million of debt due in 2027 is expected to be refinanced in due course, but the company’s large pre-tax losses in recent years will see interests rates on new loans increase significantly.
S&P said that Merlin could run low on cash reserves in 2026, and that its capital expenditure was “unsustainable”, sentiments echoed by Moody’s this week.
Moody’s said it expected Merlin would have adequate access to loans for the next year, but that refinancing risk remains high due to the speculative nature of debt and limited access to capital markets.
Merlin’s Madame Tussauds brand was reduced in value by £163 million last year, forming part of £492 million losses before tax.
‘Under investment’
Helen Rodriguez, head of special situations at CreditSights, told the Financial Times that Merlin’s profitability was being “gnawed away”.
She cited “under-investment, tired and less relevant assets, a downturn in US visitor numbers across the sector and a weak UK consumer” as reasons for Merlin’s challenges.
The company’s growth model was described by Rodriguez as “scattergun overexpansion”, which eventually led to it scaling back and seeking to offload assets.
Merlin said it was looking to make £50 million of savings from its costs of operations.
“Merlin continues to maintain a healthy operating cash flow with ample liquidity and continues to invest in capex in support of the long-term growth of the business,” the company was quoted by the Financial Times.
A spokesperson for Merlin’s primary owners, Blackstone and Kirkbi said they had confidence in Merlin’s management, and that the business’ financial profile would strengthen.