Merlin Entertainments: General Discussion

[Funcone]

I don't think it's been mentioned before, but Merlin appear to be launching a new concept in the US. I'm not sure I quite get the concept, but it could be along the lines of Meow Wolf, which I've not been to, but that seems to have been successful.

Merlin unveils new immersive attraction concepts for US

Merlin Entertainments has unveiled two new immersive attractions for the US, Super Neon and Wondra, in Minneapolis and Chicago respectively.

blooloop.com

 

[Hid]

Could someone explain recent Credit Bond Downgrade.

I understand the broad basic of it but not sure how much it will have on Merlin

 

[Jb85]

From Copilot:

What Happened?

• S&P Global Ratings downgraded Merlin Entertainments’ senior secured bonds to CCC+, a speculative-grade rating just five notches above default. This highlights increased vulnerability and reliance on favorable market conditions to meet obligations.
• Analysts also warn that Merlin may face negative free operating cash flow of around £200 million within a year, underscoring growing liquidity concerns.

Additionally, earlier this year (April–May 2025), Merlin’s Martini.ai credit rating briefly declined to B3 (from B2), although it returned to B2 thereafter. The company currently shows an average credit spread of 6.1%, notably high among peers, indicating elevated borrowing costs.

Implications of the Downgrade


1. Higher Borrowing Costs & Refinancing Challenges

A CCC+ rating typically means investors demand higher yields, raising financing costs. This makes debt refinancing especially expensive or limited—particularly for upcoming maturities or new issuance.

2. Increased Liquidity Pressure

With projected negative cash flow (~£200 million), Merlin’s ability to service debt or fund operations may become strained if market conditions deteriorate.

3. Heightened Financial Stress Signal

The downgrade may weaken investor confidence, potentially affecting access to credit markets. Merlin may need to rely more on asset sales, operational restructuring, or external support if cash pressure intensifies.

4. Market Perception & Strategic Options

This rating places Merlin well into the speculative-grade territory, raising caution among lenders and bondholders. It could also complicate strategic moves such as raising equity or negotiating favourable terms in any private equity involvement.

5. Operational Repercussions

To ease financial strain, Merlin might:

• Postpone or scale back capital investments and expansion projects.
• Accelerate cost-cutting measures and optimization across operations.

Sector Context & Forward View

• Many industries—including travel and leisure—are expected to see EBITDA and revenue growth in 2025, which may soften some pressure.
• Merlin’s recent announcement reaffirmed a £70 million investment in North American LEGOLAND® resorts, introducing new space-themed experiences. This indicates they are trying to maintain operational momentum despite financial challenges.

While these moves demonstrate a commitment to growth and capital projects, they must be carefully balanced against liquidity constraints and the current credit stress.

Summary Table: Key Effects of the Downgrade

Impact Area	Why It Matters
Financing Costs	Higher interest expenses and tougher access to new funding
Liquidity Health	Negative operating cash flow increases solvency risk
Investor Confidence	Speculative-grade status may deter investors and lenders
Strategic Flexibility	Limits ability to pursue investments or raise equity
Operations & Growth	May slow down launches (e.g., attractions, expansions) to preserve cash

My take from a professional angle. Short term cash whilst not being unavailable is going to cost more to find, squeezing profits. You’ll like find cut backs (hmmmm) or delays to capex projects as they’ll want to reduce immediate cash outlays

 

[Hid]

From Copilot:

What Happened?

• S&P Global Ratings downgraded Merlin Entertainments’ senior secured bonds to CCC+, a speculative-grade rating just five notches above default. This highlights increased vulnerability and reliance on favorable market conditions to meet obligations.
• Analysts also warn that Merlin may face negative free operating cash flow of around £200 million within a year, underscoring growing liquidity concerns.

Additionally, earlier this year (April–May 2025), Merlin’s Martini.ai credit rating briefly declined to B3 (from B2), although it returned to B2 thereafter. The company currently shows an average credit spread of 6.1%, notably high among peers, indicating elevated borrowing costs.

Implications of the Downgrade


1. Higher Borrowing Costs & Refinancing Challenges

A CCC+ rating typically means investors demand higher yields, raising financing costs. This makes debt refinancing especially expensive or limited—particularly for upcoming maturities or new issuance.

2. Increased Liquidity Pressure

With projected negative cash flow (~£200 million), Merlin’s ability to service debt or fund operations may become strained if market conditions deteriorate.

3. Heightened Financial Stress Signal

The downgrade may weaken investor confidence, potentially affecting access to credit markets. Merlin may need to rely more on asset sales, operational restructuring, or external support if cash pressure intensifies.

4. Market Perception & Strategic Options

This rating places Merlin well into the speculative-grade territory, raising caution among lenders and bondholders. It could also complicate strategic moves such as raising equity or negotiating favourable terms in any private equity involvement.

5. Operational Repercussions

To ease financial strain, Merlin might:

• Postpone or scale back capital investments and expansion projects.
• Accelerate cost-cutting measures and optimization across operations.

Sector Context & Forward View

• Many industries—including travel and leisure—are expected to see EBITDA and revenue growth in 2025, which may soften some pressure.
• Merlin’s recent announcement reaffirmed a £70 million investment in North American LEGOLAND® resorts, introducing new space-themed experiences. This indicates they are trying to maintain operational momentum despite financial challenges.

While these moves demonstrate a commitment to growth and capital projects, they must be carefully balanced against liquidity constraints and the current credit stress.

Summary Table: Key Effects of the Downgrade

Impact Area	Why It Matters
Financing Costs	Higher interest expenses and tougher access to new funding
Liquidity Health	Negative operating cash flow increases solvency risk
Investor Confidence	Speculative-grade status may deter investors and lenders
Strategic Flexibility	Limits ability to pursue investments or raise equity
Operations & Growth	May slow down launches (e.g., attractions, expansions) to preserve cash

My take from a professional angle. Short term cash whilst not being unavailable is going to cost more to find, squeezing profits. You’ll like find cut backs (hmmmm) or delays to capex projects as they’ll want to reduce immediate cash outlays

Would the quickest way to get the money is to sell some parks to other buyers.

 

[Jb85]

Would the quickest way to get the money is to sell some parks to other buyers

Not really… selling an asset the size of a theme park, or as they have been trying to do - Sea Life - takes an incredible amount of time. Generating cash is really easy, you just stop all but essential spending.

 

[BarryZola]

Looks like they're in a death spiral. Nothing to worry about.

 

[Jb85]

Looks like they're in a death spiral. Nothing to worry about.

Over expansion in my view. It would make sense (and we know they are actively doing this) to reduce the portfolio by disposing of less profitable business units / loss making units and streamlining departments. Whilst this is ongoing, only spend when you have to.

Which makes me feel Chessie investment is reactionary to Universal as it’s out of character somewhat with the corporate message.

That said - another view - and far more risky - try spend your way out of trouble.

 

[rob666]

... try spend your way out of trouble.

That fine British Tradition!

Like the massive costs of covid...just spend and borrow, we will pay it back later.
No new taxation income to cover spending...such a vote loser.
Just keep faith in the system, it will probably sort out in the end.
Probably.

 

[Funcone]

It’s not ideal, but let’s not be melodramatic about it. There is a playbook for this kind of thing.

Realistically, they’ll probably spend the next 20 years adding the occasional Larson Loop. Then in 20 years time they’ll merge with a more successful theme park operator, before selling off some of their parks for housing and hopefully just about squeaking by.

 

[Dave]

See now this is more concerning than the accounts they released recently that the vloggers latched onto.

Unsure what their response will be, you can spend to get out of these issues but the loans you need to do so are now more expensive, we are also in a very unstable global economy at the moment with the rise of the far right usually resulting in lower buying power for low to middle income earners who are the main audience of a theme park, add to that the orange idiots tariffs likely leading to stagflation in the US and I think it’s concerning.

 

[Tom]

They cannot spend to get out of this. Their credit rating has been slashed, so it will cost them more to borrow.

Despite what many on here will think, in terms of money coming in and out, they are spending too much on investment.

There isn’t enough money coming in and they are drawing on their cash reserves in a way that could see them go bust inside a year.

They need to cut cost of operations, and cut their capital investments. We are seeing both of these in practice already, but the creditors will decide if this is aggressive enough or not, and will ultimately decide Merlin’s fate.

 

[Hid]

They cannot spend to get out of this. Their credit rating has been slashed, so it will cost them more to borrow.

Despite what many on here will think, in terms of money coming in and out, they are spending too much on investment.

There isn’t enough money coming in and they are drawing on their cash reserves in a way that could see them go bust inside a year.

They need to cut cost of operations, and cut their capital investments. We are seeing both of these in practice already, but the creditors will decide if this is aggressive enough or not, and will ultimately decide Merlin’s fate.

All businesses do have bad spells, I think old Merlins lack of investment in between 2015 and 2020 has come back to bite them

 

[QTXAdsy]

If in the worse case scenario that Merlin are utter stripped and reduced to a husk of what they once were come Universal GB opening in 2031, I doubt Merlin are going to survive as clearly if it is true that they have invested too much then there is no chance they'll compete (Chessie though being a strange exception) and we might even might not get that long awaited competitive battle we've all wanted to see Merlin come across in the UK as for all we know Merlin will have collapsed and we might end up in a situation in which one theme park operator rules supreme. How ****** ironic.

 

[Hid]

A theroetic scenario would another theme park operator actually by one of the Merlin Parks because realistically the infrastructure is there, they are large parks and could be profitable given the right strategy.

 

[jon81uk]

If in the worse case scenario that Merlin are utter stripped and reduced to a husk of what they once were come Universal GB opening in 2031, I doubt Merlin are going to survive as clearly if it is true that they have invested too much then there is no chance they'll compete (Chessie though being a strange exception) and we might even might not get that long awaited competitive battle we've all wanted to see Merlin come across in the UK as for all we know Merlin will have collapsed and we might end up in a situation in which one theme park operator rules supreme. How ****** ironic.

The Merlin parks will survive Universal opening. There will still be a price difference between them and they will offer different things.

 

[Dave]

They cannot spend to get out of this. Their credit rating has been slashed, so it will cost them more to borrow.

This is a big misconception that exists in the population, business like government are not the same as people’s personal bank accounts. Sometimes you very much have to spend to get out of these things.

Good example in the theme park world is Universal, it was really struggling after opening Islands of adventure, finances going backwards. They then spent an astronomical amount of money on Harry Potter and it massively turned around their fortunes.

I’m not saying it is always the solution and I don’t know that Merlin would go down that route but we shouldn’t apply personal finance principles on business.

Same with the economy but because voters don’t know this governments are scared to increase spending against debt. But history shows it’s actually the only way out of recession.

 

[owenstreet7]

It’s not ideal, but let’s not be melodramatic about it. There is a playbook for this kind of thing.

Realistically, they’ll probably spend the next 20 years adding the occasional Larson Loop. Then in 20 years time they’ll merge with a more successful theme park operator, before selling off some of their parks for housing and hopefully just about squeaking by.

In all seriousness, I don't know think the UK actually has a Larson Loop so it could be the UK's first?

Although it does concern me seeing what is going on with Merlin and how that could lead to further cost cutting

At the same time, we see doom and gloom every year about Merlin and find that they manage to get by.