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Blackstone-backed Merlin Entertainments is under increasing financial strain ahead of a critical refinancing, as the Legoland-owner’s weak performance has led to a sell-off in its bonds and heightened fears over a potential restructuring.
On Tuesday Moody’s downgraded Merlin, which also owns Madame Tussauds and the London Eye, further into junk territory.
The rating agency noted that “maintaining a sustainable capital structure will be challenging without further asset disposals or shareholder support,” as it cut Merlin’s rating to Caa1, seven notches below investment grade.
Merlin has struggled with rising operating costs and subdued consumer spending since it was taken private in a £6bn leveraged buyout in 2019 — a deal that left the group saddled with more than £4bn of debt. As of the end of 2024 Merlin operated 135 attractions in 22 countries.
Bonds issued by the leisure group have sold off in recent months, ahead of a refinancing of £630mn of debt maturing in 2027. Merlin’s safest senior secured bonds, which were trading at par in March, now trade at 86 cents on the dollar.
One high-yield bond trader said Merlin had been hit by a “perfect storm,” including a “harsh business environment, plus there’s high new capex needed, and an upcoming finance need . . . it needs a restructuring, big time”, he added.
The year after Merlin was taken private — by a consortium of Blackstone, Canadian pension fund CPPIB and Kirkbi, the investment vehicle of Lego’s founding family — it was forced to close all but nine of its 130 sites when the Covid-19 pandemic struck.
Merlin subsequently turned to bond markets to raise €500mn of emergency funding.
Moody’s downgrade this week comes two months after a downgrade from another rating agency, S&P, which warned that Merlin could run low on cash next year as a result of depressed earnings and interest expenses.
Merlin’s pre-tax losses more than doubled to £492mn in 2024 after it wrote down the value of some of its largest assets by £384mn, including a £163mn impairment of Madame Tussauds.
Alongside struggles at Merlin’s long-held assets, the company has said returns generated by Legoland New York and Legoland Korea, which opened in 2021 and 2022 respectively, have failed to meet expectations.
Helen Rodriguez, head of special situations at CreditSights, said that Merlin’s profitability was being “gnawed away” by “under-investment, tired and less relevant assets, a downturn in US visitor numbers across the sector and a weak UK consumer”.
Merlin’s “scattergun overexpansion” had forced it to look at dialling back its sprawling portfolio, Rodriguez added.
Multiple restructuring advisers said Merlin was on their watchlist, while several credit investors questioned the sustainability of its capital structure.
Merlin said it was improving profitability and its “smart spending” programme would generate roughly £50mn of annual cost savings.
“Merlin continues to maintain a healthy operating cash flow with ample liquidity . . . and continues to invest in capex in support of the long-term growth of the business,” the company said.
The company is due to receive around £200mn from the sale of 29 Lego Discovery Centres to the Lego Group by early 2026. It shelved the sale of its British aquariums this summer after bids fell short of expectations.
Merlin appointed new CEO Fiona Eastwood this year to lead what it has called a “transformational strategy” that will refocus the company on its key attractions.
A spokesperson for Blackstone and Kirkbi said: “We have confidence in Merlin and its management team, and believe the financial profile of the business will continue to strengthen.”
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