Pandemic challenges Legoland parent

Posted on by Hotel Leisure Advisors

H&LA’s David Sangree got the opportunity to weigh in for an article in the Times Herald-Record on the challenges for Legoland’s owner Merlin Entertainment in the wake of the COVID-19 pandemic that is challenging leisure attractions worldwide.

Published by: Daniel Axelrod/Times Herald-Record
Published date: May 2020

Legoland New York’s parent company is in survival mode, recently completing a $543 million high-interest bond sale to sustain it while the coronavirus pandemic closes its attractions.

The junk bond sales’ timing couldn’t be worse for Legoland’s United Kingdom-based owner, Merlin Entertainments, which in March delayed till 2021 its July 4 scheduled opening for a $500 million Goshen Legoland. (Work on a new state Route 17 Exit 125 beside the park, set to be the largest of nine Legolands worldwide, continues).

Merlin was already deep in high-interest debt, following a roughly $7.5 billion leveraged buyout, led last June by U.S. private equity giant Blackstone, the Canada Pension Plan Investment Board and an entity owned by KIRKBI Invest A/S, investment vehicle for Danish family that invented Lego bricks.

The parties took Merlin private, with debt moves that analysts widely characterized as loose and aggressive, including a $2.81 billion loan and a subsequent $821 million bond issuance.

S&P Global Ratings and Moody’s each rate Merlin well below investment-grade. And Moody’s recently assigned a B1 (junk-grade) rating to Merlin’s latest bond sale, which subordinated October’s bond buyers for repayment.

Merlin, the second-largest operator of visitor attractions behind Disney, recently told investors just nine of Merlin’s 130 venues, including Madame Tussauds wax museums and other attractions, are open.

“We have a strong 20-year track record as a highly cash generative company with supportive owners,” Merlin spokeswoman Julie Estrada said in a statement on Monday. “We have put in place a number of immediate measures to reduce costs where attractions are currently closed, and are engaging with governments to utilize the support packages being put in place across the markets where we operate.”

Even losing 90 percent of its business through July, Merlin’s liquidity is adequate in the short-term, according to Moody’s.

Dennis Speigel, CEO of Cincinnati-based International Theme Park Services, an analysis firm, said he thinks it’ll take the theme park industry two or three years to recover from the pandemic. And he wonders if customers , who are currently satisfied if they average at least 1.5 rides per hour, will be willing to ride half as often under post-pandemic social distancing protocols.

Attractions expert David Sangree said Merlin will be seriously challenged, especially because it owns so many indoor attractions, where it’s tougher to space out guests.

“You can’t cut the capacity of a restaurant, theme park or an indoor water park to 25 percent of normal capacity and be profitable,” Sangree said.

Pre-pandemic, Legoland New York was expected to average 10,000 guests per day in up to 3,500 cars per day. Will parents feel safe bringing children in the future?

“It’s going to be a very long wait, especially with news of young children dying (in the pandemic), before anybody can go to any Legoland with confidence,” said Chris Miele, an activist with Concerned Citizens for the Hudson Valley.

Dan Axelrod

Merlin’s future is another question. Disney Shanghai reopened, Monday, at less than one-third capacity, said Dennis Speigel, CEO of Cincinnati-based International Theme Park Services, an analysis firm.

Merlin “will make it,” though it faces an unprofitable year if parks don’t open in early July, said Speigel, adding the company is burning through about 30 million pounds ($36.9 million) per month.

In other news, Monday, the state Department of Environmental Conservation confirmed it’s negotiating a third consent order with Legoland to force the company to stop polluting mid-Hudson waterways with construction runoff.