ClubCorp's (MYCC) CFR Affirmed by Moody's Amid Plans to Upsize Revolver, Repay Existing Term Loan

Moody's Investors Service today affirmed ClubCorp Club Operations, Inc.'s (NYSE: MYCC)("ClubCorp") Corporate Family Rating (CFR) at B1 and its Speculative Grade Liquidity rating of SGL-1 following the company's announcement that it plans to upsize its revolver and repay a portion of its existing term loan with proceeds from a proposed notes offering. At the same time, Moody's upgraded the company's Probability of Default Rating (PDR) to B1-PD from B2-PD, which is in line with the company's CFR, due to a change in the mix of debt in the company's capital structure resulting in the expected family recovery rate being reduced to 50% from 65%. The bank facilities are viewed as new debt instruments by Moody's due to the extended maturity dates. ClubCorp's existing senior debt ratings will be withdrawn upon the close of the proposed transaction. The rating outlook is maintained at stable.

The company's credit metrics moderately weaken pro forma for the newly proposed capital structure, thus the affirmation of ClubCorp's B1 CFR is somewhat prospective in nature in that Moody's expects leverage and interest coverage to improve over the next 12 to 18 months. For the twelve months ended September 8, 2015, pro forma for the new capital structure, Moody's adjusted debt-to-EBITDA was approximately 5.2 times and EBITA-to-cash interest coverage was roughly 1.8 times. Moody's expects leverage to trend toward the 4.5 to 5.0 times range by FYE16 and cash coverage of interest to approach 2.0 times during the same period. Moody's also expects membership rates to remain healthy, supported by its relatively affluent base, and for the company to continue to grow its top-line and profitability organically and to a lesser extent through acquisitions over time.

The transaction also improves the company's liquidity profile by extending debt maturities, increasing the size of the revolving credit facility, and by repaying existing borrowings of roughly $47 million.

According to Moody's Analyst Brian Silver, "ClubCorp has grown its top-line and experienced solid operating performance over the last few years while aggressively growing its portfolio of clubs via acquisitions. However, leverage also increased during this period, primarily as a result of the largely debt-financed nature of the acquisitions and significant growth-oriented capital investments at new and existing properties. Going forward we expect the company to reap the benefits of these investments by growing profitability and using excess cash flow for debt repayment over the next few years."

The following ratings at ClubCorp Club Operations, Inc. have been assigned:

$175 million super priority senior secured revolving credit facility due 2021 rated Ba1 (LGD1);

$625 million senior secured term loan B due 2022 rated Ba3 (LGD3);

$400 million senior unsecured notes due 2023 rated B3 (LGD5).

The following ratings at ClubCorp Club Operations, Inc. have been upgraded:

Probability of Default Rating to B1-PD from B2-PD.

The following ratings at ClubCorp Club Operations, Inc. have been affirmed:

Corporate Family Rating at B1;

Speculative Grade Liquidity Rating at SGL-1.

The following ratings at ClubCorp Club Operations, Inc. will be withdrawn upon the close of the transaction:

$135 million senior secured revolving credit facility due 2018 rated B1 (LGD3);

$901 million senior secured term loan B due 2020 rated B1 (LGD3).

The rating outlook is maintained at stable

RATINGS RATIONALE

ClubCorp's B1 Corporate Family Rating (CFR) reflects the company's relatively high leverage considering the potential cyclicality of its highly discretionary core business as a golf and business club owner/operator. At the same time, the rating is supported by ClubCorp's leadership position in the private golf club business and its solid and growing recurring revenue base supported by a dues-based business model and affluent clientele. ClubCorp is expected to remain acquisitive in the highly fragmented golf club space, but is unlikely to make many acquisitions the size of Sequoia (included 50 clubs) due to a limited number of owner/operators with such a large amount of clubs. ClubCorp targets clubs near densely populated and affluent areas, often with the goal of clustering its properties, thereby enhancing the value proposition of its primary upgrade offering that among other things, provides members benefits at other ClubCorp properties. The company generates healthy and consistent cash flow from operations, but free cash flow generation has been tempered by steadily increasing growth oriented capital expenditures. Free cash flow generation is expected to accelerate once growth oriented capital expenditures moderate as maintenance capital expenditures are relatively low.

The stable rating outlook reflects Moody's expectation that ClubCorp will be able to maintain its membership base and stable operating performance over the intermediate term. Moody's also expects the company to utilize excess cash flow to deleverage over the next few years. In addition, the stable rating outlook incorporates Moody's expectation that ClubCorp will maintain a very good liquidity profile and that it will exercise a conservative financial policy with respect to dividends, share repurchases and acquisitions.

A ratings upgrade is unlikely in the near term given ClubCorp's size (based on total revenues) and geographic concentration. Over the intermediate term, a substantial expansion of the membership base and geographic diversification, accompanied by Moody's adjusted debt-to-EBITDA sustained below 4.0 times and EBITA-to-cash interest expense above 3.0 times could lead to an upgrade. Alternatively, ratings could be downgraded if ClubCorp's leverage as measured by Moody's adjusted debt-to-EBITDA approaches 5.5 times, or EBITA-to-cash interest expense approaches 1.25 times. Ratings could also be downgraded if liquidity deteriorates for any reason, if the company undertakes sizeable debt-financed acquisitions, or if management initiates more aggressive policies with respect to dividends and share repurchases.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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