S&P Global Ratings raised its debt ratings on Powdr Corp. as skier visitations exceeded S&P’s forecast during the 2021/2022 ski season, resulting in revenue, EBITDA, and adjusted leverage that has outperformed S&P’s previous base case.

S&P said it now expects the company to reduce its measure of total adjusted debt to EBITDA to approximately 5x by fiscal 2022 (ended September). The rating agency also said that it expects a moderate softening in demand for outdoor recreation in 2023, it believes Powdr has sufficient cushion to withstand a decrease in skier visitation, weaker pricing, or the potential impact of unexpected adverse weather patterns next ski season.

As a result, S&P raised its issuer credit rating on Powdr to ‘B’ from ‘B-‘.  The rating on the company’s $270 million outstanding senior secured notes due 2025 was raised to ‘B’ from ‘B-‘. The stable outlook reflects S&P’s  expectation that Powdr Corp. will maintain total leverage, including its payment-in-kind (PIK) debt, of well under S&P”s  7x downgrade threshold through 2023 under its base-case assumptions, which incorporates a moderate softening of demand within the ski industry.

S&P said in its analysis, “The upgrade reflects our expectation that Powdr will reduce total leverage, including PIK debt, to approximately 5x in fiscal 2022 as a result of strong 2021/2022 skier visitation, increased ticket pricing and modest debt repayment. Through the first half of the year, Powdr reported an increase in total revenue and reported EBITDA of 41 percent and 72 percent, respectively. Skier visitation through March 31, 2022, which incorporates most of the ski season, is up 12 percent and effective ticket price (ETP) is up 18 percent over the same time frame. ETP was elevated this season as the company introduced fast passes, sold a higher mix of year-round season passes, and was able to increase lift ticket prices throughout the year in line with excess demand. We believe that Powdr, as well as all ski resort operators, benefited from stronger-than-expected demand throughout the 2021/2022 ski season because consumers continued to seek outdoor recreation as a safe activity amid high COVID-19 case counts stemming from the omicron variant. Additionally, despite ongoing labor inflation, Powdr was able to increase reported EBITDA margin through the first half to approximately 45 percent from 37 percent in 2021. We believe that this was largely the result of a reduction in staffing compared to prior seasons as the ability to hire seasonal labor remained strained. Under our base-case assumptions, Powdr’s revenue during the second half of the year will remain comparable to that of last year. Powdr’s summer operations are comprised of its Woodward Camp segment and various outdoor activities held at its mountain resorts. We expect 2022 total revenue to increase 25 percent-30 percent and for reported EBITDA margin to improve to the low-20 percent area, compared to 16.9 percent in 2021. As a result, we expect S&P Global Ratings’ total adjusted debt to EBITDA of approximately 5x in fiscal 2022.

“We believe Powdr would be able to sustain a modest pullback in demand for outdoor recreation and maintain total leverage below our 7x downgrade threshold for the current rating. According to the National Ski Areas Association, the 2021/2022 ski season was a record year for skier visitation at 61 million total visits, a 3.5 percent increase over last season. Powdr’s skier visitation has increased approximately 12 percent season to date. We believe that a portion of this growth has been driven by the COVID-19 pandemic, which has resulted in new entrants into the sport who could be at risk of exiting once COVID-19 diminishes completely. While we are not currently forecasting a decline in skier visitation, we expect the company’s ETP could decline if the company is unable to price lift tickets at the same rate as the 2021/2022 ski season.

“Business risks include the company’s exposure to consumer discretionary and travel spending, the small scale of its revenue base, reliance on favorable snow conditions, revenue and EBITDA concentration at its Copper Mountain resort, and lower profitability than that of rated peers. While Powdr has diversified its product offerings in recent years by acquiring Woodward action sports camps, the winter season still accounts for over 85 percent of revenue. Lift access, inclusive of lift tickets and season pass sales, accounts for approximately 50 percent of total revenue, which we believe leaves Powdr reliant on a single line of business to drive profitability and that revenue and EBITDA generation are vulnerable to variations in seasonal snowfall patterns, and the cyclical nature of consumer discretionary and travel spending. Its revenue base is smaller than that of rated peers, even those with a comparable number of resorts and similar skiable acres. Its EBITDA margin is modestly lower as well, likely due to lower pricing power. The company also has significant revenue and EBITDA concentration at Copper Mountain in Colorado, which we believe accounts for approximately 35 percent of revenue and a large portion of the company’s EBITDA.

“The stable outlook reflects our expectation that Powdr Corp. will maintain total leverage, including PIK debt, well below our 7x downgrade threshold through 2023 under our base-case assumptions, which incorporates a moderate softening of demand within the ski industry.”

Powdr Corp.,  located in Park City, UT, is one of the largest ski resorts in North America. Properties include Copper Mountain and Eldora Mountain Resort in Colorado; Killington and Pico Mountain in Vermont; Boreal Mountain Resort and Soda Springs in the Lake Tahoe region of California; Mt. Bachelor in Oregon, Lee Canyon in Nevada; Snowbird and Woodward Park City in Utah; and SilverStar Resort in British Columbia. POWDR owns the Woodward experiential action sports company which includes Woodward PA, Woodward Copper in Colorado, Woodward Tahoe, Woodward West in Stallion Springs, CA, and Woodward Riviera Maya, Mexico.