Alterra Mountain Co. Outlook Revised To Stable From Positive On Incremental Term Loan And A Ratings Affirmed

Stocks and Financial Services Press Releases Wednesday June 20, 2018 09:32
NEW YORK--20 Jun--S&P Global Ratings

NEW YORK (S&P Global Ratings) June 19, 2018--S&P Global Ratings today revised its rating outlook on Denver-based Alterra Mountain Co. to stable from positive and affirmed its 'B' corporate credit rating.

We also affirmed our 'B' issue-level rating on the first-lien credit facility, which consists of a $225 million revolving credit facility due 2022 and an upsized $1.61 billion term loan B due 2024, which incorporates the incremental term-loan of $50 million. The first lien debt has a recovery rating of '3', indicating our expectation for meaningful recovery (50% to 70%; rounded estimate: 65%) for lenders in the event of a payment default. We affirmed the first-lien debt's issue-level rating despite additional secured debt in our hypothetical default scenario because we modestly increased Alterra's emergence valuation to reflect the proposed acquisition.

The outlook revision to stable from positive reflects incremental leverage from the proposed Project Eagle acquisition, which is expected to result in pro forma adjusted debt to EBITDA in the low-6x area in the fiscal year ending July 31, 2018, and in the high-5x area in fiscal 2019. As a result, the acquisition is likely to result in slower reduction of leverage to below our 6x upgrade threshold. In addition, because of the company's acquisitive strategy and an active market for ski resorts (as evidenced by recent transactions in the industry), Alterra could continue to pursue debt-financed acquisitions that sustain our measure of lease-adjusted leverage in the 6x area. This level of leverage would not provide a cushion for a higher rating incorporating the potential for periodic snowfall and operating volatility. We also believe Alterra's over $500 million capital expenditure program over the next five years could raise asset quality and help the company stay competitive compared to peers. However, high investment spending will probably result in very thin cash flow available for debt repayment, which also supports the outlook revision and our base case forecast that the company will be highly leveraged over at least the next two years. Still, we are affirming the 'B' corporate credit rating because we expect adjusted leverage to be well below our mid-7x downgrade threshold.

The stable outlook reflects our forecast for pro forma adjusted debt to EBITDA (including recently completed acquisitions and the proposed Project Eagle purchase) to be in the low-6x area in fiscal 2018 ending July 31, which is well below our downgrade threshold of mid-7x for the company.

We could consider lowering the rating if operating performance deteriorates and results in adjusted debt to EBITDA above the mid-7x area or adjusted EBITDA coverage of interest expense below 1.5x on a sustained basis. This could result from multi-year below-average snowfall concurrent with other leveraging events.

We could consider a higher rating if we are confident the company will sustain adjusted debt to EBITDA below 6x.

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