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Blackstone-backed Merlin Entertainment is under increasing financial stress ahead of a major refinancing as the Legoland owner’s poor performance has driven down its corporate bonds and raised concerns about a possible restructuring.
On Tuesday, Moody’s further downgraded Merlin, which also owns Madame Tussauds and the London Eye, further into junk territory.
The rating agency lowered Marlin’s rating to Caa1, seven notches below investment grade, noting that “absent further asset dispositions or shareholder support, maintaining a sustainable capital structure will be difficult.”
Merlin has struggled with rising operating costs and weak consumer spending since being taken private in a £6bn leveraged buyout in 2019. The deal left the group with debt of more than £4bn. As of the end of 2024, Merlin operated 135 attractions in 22 countries.
Bonds issued by Leisure Group have been sold in recent months ahead of a refinancing of a £630m bond due to mature in 2027. Marlin’s most secure senior secured bonds, which traded at par in March, now trade at 86 cents on the dollar.
One high-yield bond trader said Merlin was facing a “perfect storm” of “a difficult business environment, significant new capital investment, and future capital needs… a major restructuring is needed.”
The year after Merlin was taken private by a consortium of Blackstone, Canadian pension fund CPPIB and Kirkbi, the investment vehicle of the Lego founders, the company was forced to close all but nine of its 130 locations when the coronavirus pandemic hit.
Merlin then turned to the bond market to raise an emergency fund of 500 million euros.
Moody’s downgrade this week comes two months after a downgrade by another rating agency, S&P. S&P warned that Marlin could run out of cash next year due to weaker earnings and interest expenses.
Merlin’s pre-tax loss more than doubled to £492m in 2024 after a £384m writedown on some of its biggest assets, including a £163m writedown on Madame Tussauds.
In addition to struggles with Merlin’s long-term assets, the company said the revenue generated by Legoland New York and Legoland Korea, which opened in 2021 and 2022, respectively, did not meet expectations.
Helen Rodriguez, Head of Special Situations at CreditSights, said Merlin’s profitability was “eroded” by “underinvestment, tired and unrelevant assets, declining US visitor numbers across the sector and UK consumer weakness”.
Marlin’s “scatter gun overexpansion” has forced it to consider downsizing its vast portfolio, Rodriguez added.
Restructuring advisers said Merlin was on their watch list, while credit investors questioned the sustainability of the capital structure.
Merlin said profitability was improving and its “smart spending” program was expected to save around £50m a year.
“Marlin continues to maintain healthy operating cash flow with ample liquidity and continues to make capital investments to support the long-term growth of the business,” the company said.
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The company expects to sell its 29 LEGO Discovery Centers to the LEGO Group by early 2026 for around £200m. The company shelved the sale of its British aquarium this summer after bids fell short of expectations.
A spokesperson for Blackstone and Kirkbi said: “We have confidence in Merlin and its management team and believe the financial position of the business will continue to be strong.”
