Merlin Entertainments' latest refinancing replaces $830 million of unsecured bonds due in 2025 with £657 million ($871 million) of new loans announced Sept. 10. Prices initially firmed, then reversed as the details sank in, leaving portions of the capital structure more than 10 cents lower.
The company's €700 million note maturing June 2030 was indicated around 69.3 cents per euro on Monday, down by about 12 cents from before the financing. Some holders also trimmed exposure: people familiar said a roughly €30 million (about $34 million) slice of the June 2030 bonds traded last week.
The fresh loans sit on par with about £3.2 billion of Merlin's other debt and come with extra claims over several UK assets that generate significant cash, including the London Eye, SEA World London, Shrek's Adventure!, and the London and UK Dungeons. That structure diminishes potential recoveries for other secured creditors, S&P Global Ratings said, and it shifted its B- view to CreditWatch Negative for Merlin's senior secured debt. Moody's Ratings said swapping out unsecured paper increases potential losses for senior lenders and lowered the loans one notch to Caa2.
Ironshield Capital's Isharsimran Sawhney called the move "one year of wiggle room" that does not fix longer term challenges. The firm in London recently exited a short in Merlin's debt. The respite is costly for current lenders, since the newcomers are pari passu and hold priority liens over a bundle of UK assets, including the London Eye.
Merlin posted a £25 million net cash outflow in the first half, according to financials reviewed by Bloomberg News. S&P said money from a recent asset sale should lift liquidity coverage to above 1.5 times expected needs over the coming year. Still, the persistent cash burn could complicate tackling the 2029 maturity, when $2.5 billion in term loans are scheduled to mature. Borrowers usually start working on rollovers 12 to 18 months in advance, and Ironshield portfolio manager Frits Lieuw-Kie-Song said a plain-vanilla refinancing looks unlikely, with even an amend-and-extend potentially hard to pull off.
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"The new financing hasn't dealt with the underlying problems which are cash flow and operating performance," said Ben Pakenham at Polen Capital, adding, "It is hard to see these bonds being worth par unless there is a meaningful turnaround in earnings or an equity injection." Merlin is backed by Blackstone Inc., the Canadian Pension Plan Investment Board and Kirkbi A/S. Declining to comment were representatives of Merlin and Blackstone. Beyond the London Eye, Merlin runs Legoland parks, Madame Tussauds and Sea Life.
For everyday investors, the takeaway is simple: when new money jumps the line on valuable assets, existing lenders can get squeezed. If you hold credit funds that might own Merlin paper, watch liquidity, operating trends and any talk of fresh equity, not just the headline that near term maturities are handled.
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