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SeaWorld Credit Rating Lowered to Junk Status by Standard & Poor’s

Skift Take

SeaWorld’s brand hit has parallels to the reputation damage that fellow Florida operator Carnival Corp. has had to deal with over the last two years. Carnival is only now recovering, and SeaWorld’s struggles may turn out to be more protracted because ending killer-whale shows is a decision SeaWorld isn’t ready to make.

— Dennis Schaal

Standard & Poor’s lowered SeaWorld Entertainment’s credit rating to junk status, citing “significant challenges” to the brand’s reputation and the challenges of improving operating performance in 2014.

The credit rating agency lowered SeaWorld’s corporate credit rating to “BB-” from “BB,” which makes it more costly for SeaWorld to borrow.

“The downgrade reflects our revised forecast for 2014 EBITDA to decline approximately 15% before stabilizing in 2015, and our expectation that debt to EBITDA will increase to the mid-4x area in 2014 and remain at this level in 2015,” said Standard & Poor’s credit analyst Shivani Sood.

The ratings downgrade occurred after SeaWorld reported second quarter earnings August 13, lowered guidance, and for the first time acknowledged that the negative publicity surrounding its treatment of orca whales and California legislation — subsequently tabled — that would have banned killer whale performances at SeaWorld San Diego had adversely impacted attendance.

“We believe that revenues, driven by lower attendance and per capita spending, will remain weak through the
remainder of the year,” S&P stated. “This weakness, coupled with higher advertising and marketing expenses in 2014 as SeaWorld combats the negative publicity and lower attendance, will lead to the decline in 2014 EBITDA.”

SeaWorld’s profits declined 20% in the first half of 2014, S&P noted, as attendance at its parks declined 4.3% year over year.

S&P stated that SeaWorld’s negative trends could stabilize in 2015, although it could lower SeatWorld’s ratings again if SeaWorld’s operating performance deteriorates.

SeaWorld’s share price fell 33.7% to $18.66 at the close on August 15 compared to $28.15 per share at the close on August 12 before the company reported Q2 earnings.

SeaWorld’s announcement Aug. 15 that it will increase the size of the orcas’ tanks and donate $10 million into killer-whale research doesn’t appear to have swayed investors.

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