Merlin Entertainments credit rating falls as debt and losses mount

Merlin Entertainments, the owner of Alton Towers and Legoland Windsor, has suffered a fresh blow to its financial standing as Moody’s downgraded its credit rating further into junk territory. The leisure giant is struggling beneath a debt pile exceeding £4 billion, a burden heightened by persistently challenging trading conditions across its array of global attractions.

Analysts at Moody’s reduced the rating on Merlin’s bonds from B3 to Caa1, indicating a deteriorating outlook unless the company executes sizable cost reductions and continues a disciplined approach to capital spending. Despite the downgrade, Moody’s observed that Merlin still has robust liquidity, with a £100 million cash balance and an undrawn debt facility totalling £428 million. The outlook remains stable, provided management persists with efficiency measures and careful capital allocation.

A spokesperson for Merlin Entertainments confirmed cost-saving programmes have already yielded annual savings of £21 million. The group maintains that it has a strategic vision for long-term growth, and remains optimistic about prospects in the broader experience economy. Merlin is supported by long-term fixed debt and healthy operating cash flows, key factors the business believes will underpin its capacity to invest in future opportunities.

The company, acquired in 2019 in a £6 billion deal led by Blackstone, the Kristiansen family behind Lego, and the Canada Pension Plan Investment Board, faces upcoming debt refinancing of £630 million within the next nine months. Moody’s suggested improvement in operating performance could strengthen Merlin’s credit metrics before significant debt matures in November 2027. Nonetheless, the agency noted pressures remain on maintaining a sustainable capital structure, pointing to the likelihood of asset disposals or shareholder support being required.

Despite welcoming more than 62 million visitors to its 135 sites in 2024, Merlin saw revenues slip and pre-tax losses balloon to £492 million, largely due to a £384 million write-down on some of its brands, including a substantial £163 million reduction in the value of Madame Tussauds. The company has pressed ahead with expansion, investing £375 million in 24 new rides and attractions, such as Hyperia, the UK’s tallest rollercoaster at Thorpe Park.

Recently, the group announced it would sell 29 Lego and Legoland-branded locations for £200 million, a move expected to strengthen its balance sheet. Principal shareholders Blackstone and Kirkbi offered public backing, expressing confidence in Merlin’s management and its future prospects. The coming period will test whether these measures can reverse the slide in financial performance and restore investor confidence in one of the world’s leading attractions operators.