This website uses cookies, pixel tags, and similar technologies (“Cookies”) for the purpose of enabling site operations and for performance, personalisation, and marketing purposes. We use our own Cookies and some from third parties. Only essential Cookies are used by default. By clicking “Accept All” you consent to the use of non-essential Cookies (i.e., functional, analytics, and marketing Cookies) and the related processing of personal data. You can manage your consent preferences by clicking Manage Preferences. You may withdraw a consent at any time by using the link “Cookie Preferences” in the footer of our website.
Our Privacy Notice is accessible here. To learn more about the use of Cookies on our website, please view our Cookie Notice.
Merlin makes magic with upsized SSNs — but what’s in their crystal ball
Laura Thompson
+Ryan Daniel
•5 min read
British entertainment company Merlin Entertainments upsized and tightened pricing on its €700m 2030 SSNs this week in what some on the buyside hope is a sign of renewed market health, but some are still left guessing how it plans to address substantial 2026 maturities.
“There’s clearly a lot of appetite out there for paper at the moment,” said one buyside source. “It helps that this is such a steady eddie of the market, but we can only hope this encourages other issuers to come.”
The credit’s own post-pandemic reopening story won over investors, despite concerns on the consumer discretionary space, but still three buyside sources were put off by pricing. The seven-year senior secured notes (B2/B) ultimately priced with a 7.375% coupon at par to yield 7.375%, 12.5 bps in from IPTs.
The notes traded down on the break, and at one point were 99.20-99.60 according to one PM, before recovering slightly, to be indicated at 99.63-mid, per 9fin data.
“The bond is pricing tight for B2; it’s probably pricing more like a B1,” noted a High Yield Portfolio Manager, who has held Merlin's bonds since 2019.
“We rolled a smaller order than we had in the original bonds since pricing came so tight,” said the first buysider, adding that the bonds would have had to stay in the high 7s for them to roll their full order.
Looking at trading levels of Merlin’s outstanding EUR and USD Notes, 9fin’s Credit QuickTake’s relative value analysis suggested a 7.15% yield, a spread-to-worst of 4.75% for the new notes. The calculation was based on Merlin’s outstanding notes with a higher weight given to the 2026s 5.75% SUNs — which were granted security post-issuance in 2019. Peers, mostly in the US (Merlin’s second largest market) include Cedar Fair, SeaWorld Parks and Six Flags.
Despite the success of the new deal, some buyside minds remain fixed on Merlin’s upcoming maturities, with a €1.46bn TLB, $1.382bn TLB, a £400m RCF and $400m of SSNs due in 2026. Another $410m and €370m of SUNs follow in 2027.
Management said it intends to use some of the proceeds from the new notes to add cash to the balance sheet, which will “repay, redeem, repurchase (including from the open-market) or address maturities of, our other secured indebtedness”. Two buyside sources, however, say management has not clarified what section of the cap stack that refers to.
“They’ve still got some significant maturities coming up and we want that guidance so we can decide what part of the cap stack we want to be in,” said a third buysider.
“I expect them to address their dollar debt first given how FX is playing out,” said a second buysider, adding that they also expect the company to separately consider buying up its SUNs given they’re trading at a discount of mid-90s and high-80s, according to 9fin data.
Merlin, which owns brands such as Legoland, Sea Life and Madame Tussauds, is “seen as one of strongest European leisure high yield issuers in terms of brand, market position and diversification,” according to the second buysider.
The company is enjoying some post-pandemic recovery, three buysiders said, and expects to benefit from higher footfall through 2023 given last year some of their sites still had Covid restrictions (such as testing) in effect.
In for a rough ride?
That said, near-term challenges remain even if it’s a “good credit longer-term,” according to the High Yield PM, with concerns that demand for Merlin’s sites won’t prove recession-proof. “Numbers would pullback during a downturn,” the PM said. “The company is heavily reliant on the health of the UK economy given that 80% of business is derived from domestic travel.”
A fourth buyside source turned down the bonds on this aversion to consumer discretionary names, alongside high leverage and tight pricing.
According to the OM, Revenue split by geography is: UK (29%), Continental Europe excl. UK (23%), North America (35%) and Asia Pacific (13%). For LTM Apr 23, US and UK accounted for 64% of revenues.
Another point of contention amongst investors was Merlin’s pro forma adjusted EBITDA figure, which the PM describes as overstated. The last financial year (which covers 53 weeks instead of 52) adds an extra £30m to EBITDA, he noted.
As flagged in our Bond Legal QuickTake, there is a lot of flexibility for EBITDA adjustments including:
Uncapped run rate cost savings, operating expense reductions and synergies from actions taken or expected to be taken within 36 months of 4 November 2019
Uncapped pro forma run rate cost savings, operating expense reductions, synergies and EBITDA pursuant to contracted pricing (at the highest contracted rated) related to M&A, within 24 months after the application transaction
Pro forma run rate revenues related to material capex investments at attractions / theme parks (capped at proportionate percentage of such investment)
“It’s also important to factor in that they took roughly £30m in UK government support,” the PM said, putting a “true” EBITDA figure closer to £540m.
Nevertheless, there is room for optimism and a runway for more growth. Three buysiders pointed to new Legoland parks that opened recently in New York and South Korea, with expansion in China also expected after 2026. “As they spend growth capex, this will significantly add to EBITDA,” the HY PM said.
Deutsche Bank acted as lead bookrunner. The main sponsors are Blackstone, CPPIB and KIRKBI (who are 75% owners of the LEGO Group and from whom Merlin licenses the LEGO brand from).
Merlin directed 9fin to a statement from CEO Scott O’Neil: “This is an important step for Merlin as we look to further realise our ambitions across Europe, Asia and the US. Our mission is to create high growth and high return family entertainment driven by world-class visitor attractions. We are seeing a flight to quality as guests look for memorable days out with big brands families love, at trusted attractions, in the aftermath of the pandemic”.
CPPIB and KIRKBI declined to comment. Deutsche Bank and Blackstone did not respond to a request for comment.
