Moody’s Investors Service upgraded Vail Resorts, Inc.’s debt ratings to reflect its expectation for solid operating performance over the next year following strength in its 2021/22 ski season, demonstrating consumer demand and good operating execution.
The ratings upgrade includes Vail’s Corporate Family Rating (CFR) to Ba2 from Ba3 and Probability of Default Rating (PDR) to Ba2-PD from Ba3-PD.
Concurrently Moody’s upgraded the rating for the company’s existing $600 million senior unsecured notes due 2025 to Ba3 from B1. Moody’s took no action on the Speculative Grade Liquidity rating of SGL-1. The outlook remains stable.
Moody’s said, “Total revenue and earnings both surpassed pre-coronavirus levels as the result of strong ski volume and yield management through dynamic pricing, cost discipline and continued investment in transformational upgrades. Moody’s adjusted gross debt-to-EBITDA leverage declined to about 3.4x for the LTM period ended July 2022, and Moody’s expects gross leverage will remain in the mid 3x range by the end of fiscal year ending in July 2023 due to stable demand with some cost pressures for labor and to improve service quality and customer amenities.
“The Epic season pass contributes to good skier loyalty, improved demand visibility and moderating the cash flow seasonality. Advance Epic pass sales indicate good demand for the upcoming 2022/23 ski season with both higher volume and pricing.
“Moody’s believes it is less likely that Vail will repay the debt issued during the pandemic to bolster cash and liquidity. The company will, instead, likely utilize the cash for growth investments such as tuck-in acquisitions completed in FY22 and FY23.
“Moody’s projects Vail will generate comfortably positive free cash flow over the next year despite increased capital spending to fund infrastructure improvements and amenities that enhance service levels. This should enable the company to maintain gross debt-to-EBITDA leverage below 4x over the next few years, even if an economic slowdown or poor weather negatively affects a particular ski season.
“Additionally, the upgrade of CFR reflects that the company’s very good liquidity (SGL-1) over the next year provides considerable financial flexibility to manage periods of lower earnings. Liquidity is supported by about $1.1 billion of cash on the balance sheet as of July 31, 2022 and approximately $637 million of combined unused capacity on its subsidiaries’ revolver credit facilities (U.S. and Whistler Blackcomb revolving credit facilities) that expire in 2026.
“After capital spending and dividends, Moody’s expects the company will be able to generate free cash flow in excess of $150 million over the next year.”
