4th Jul 2019 11:52
(Alliance News) - Moody's Investors Service on Thursday said it placed under review for downgrade the Ba2 corporate family rating of Merlin Entertainments PLC.
The outlook has also been put under review, from stable previously.
Moody's said the review follows Merlin's announcement that its board supports a takeover offer from investor consortium, comprising the owner of LEGO brand - that already holds 30% of Merlin - Blackstone and the Canada Pension Plan Investment Board, to buy the company for GBP5.9 billion.
The deal, announced last Friday, values Merlin shares at 455 pence each in cash, representing a 15% premium compared to the attraction operator's closing price of 395p on Thursday last week.
Back in May, shareholder ValueAct Capital urged Merlin to evaluate a merger or go private, believing the FTSE 250 constituent's share price did not reflect its underlying value.
Merlin shares were trading flat on Thursday at 448.50 pence each in London.
Turning back to ratings, Moody's said its action was prompted by the expectation of an increase in leverage if the acquisition is completed.
Whilst there is no full disclosure on the debt and equity mix following the acquisition, Moody's noted that, according to Merlin's disclosure, the buyer secured GBP3.8 billion of debt, which is significantly higher than Merlin's current debt level of around GBP1.3 billion.
The review, which Moody's expects to be completed by the final quarter of 2019, will focus on the capital structure for the expected transaction, leverage and free cash flow and the company's strategy.
Looking forward, Moody's said it expects it to be difficult for Merlin to achieve "significant" earnings before interest, taxes, depreciation, and amortization growth in 2019 because of strong prior year comparables and rising expenses.
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Merlin Entertainments