New York, September 22, 2022 — Moody's Investors Service, (“Moody's”) upgraded Alterra Mountain Company's (Alterra) Corporate Family Rating (CFR) to B1 from B2 and Probability of Default Rating (PDR) to B1-PD from B2-PD. Concurrently, Moody's upgraded the rating for Alterra's first lien senior secured revolver and term loan to B1 from B2. The outlook is stable.

The CFR upgrade to B1 reflects Moody's expectation for continued good operating performance over the next year following a very strong 2021/2022 ski season that demonstrated healthy consumer demand and good operating execution. Total revenue and earnings both surpassed pre-coronavirus levels as the result of strong ski volume and yield management through dynamic pricing, cost discipline, and continued investment in transformational upgrades. Moody's adjusted debt-to-EBITDA leverage declined to about 4.9x for the 12 months ended April 2022 and Moody's expects leverage will remain in a high 4x range by the end of the upcoming fiscal year ending in July 2023 due to stable demand with some cost pressures for labor and to improve service quality and customer amenities. The opportunity to deploy the large cash balance for acquisitions and growth investments that add to the EBITDA base also provide moderate cushion within leverage expectations for the rating should visitation fall from the very strong levels experienced in the 2021/2022 ski season or if the company has difficulty mitigating cost pressures. The IKON pass is contributing to good skier loyalty, improved demand visibility, and moderating the cash flow seasonality. Advance IKON pass sales indicate good demand for the upcoming 2022/2023 ski season.

Additionally, the company will maintain very good liquidity over the next year with about $1.3 billion of cash on balance sheet as of April 30, 2022 and access to an undrawn $450 million revolver due July 2024. Moody's expects the company will be able to fund increased capital spending over the next year with internal cash flow, and generate very modestly positive free cash flow. The large cash balance is expected to be used on strategic tuck-in acquisitions.

Moody's took the following actions:

…Issuer: Alterra Mountain Company

Upgrades:

…. LT Corporate Family Rating, upgraded to B1 from B2

…. Probability of Default Rating, upgraded to B1-PD from B2-PD

…. Senior Secured First Lien Bank Credit Facilities (revolver and term loans), upgraded to B1 (LGD3) from B2 (LGD3)

Outlook Actions:

..Issuer: Alterra Mountain Company

….Outlook, Remains Stable

RATINGS RATIONALE

Alterra's B1 CFR reflects its modestly high financial leverage with LTM (as of April 30, 2022) Moody's adjusted debt-to-EBITDA of about 4.9x. Looking into FY23, and barring a deep economic recession, Moody's expects stable demand for ski and outdoor leisure activities, with cost pressures modestly reducing EBITDA and keeping debt-to-EBITDA leverage in a high 4x range by the end of fiscal July 2023. The rating reflects that Alterra's operating results are highly seasonal and exposed to varying weather conditions and discretionary consumer spending. Governance factors primarily relate to the company's private equity ownership and acquisition strategy.

However, the rating is supported by Alterra's strong position as one of the largest operators in the North American ski industry, operating 15 ski resorts in the US and Canada. Alterra benefits from its good geographic diversification, and high local skier customer mix given its mostly regional portfolio of ski properties. The growing penetration of the IKON Pass provides a stable revenue stream that helps mitigate weather exposure. The North American ski industry has high barriers to entry and has exhibited resiliency even during weak economic periods, including the 2007-2009 recession. The company's very good liquidity reflects its material cash balance of $1.3 billion, access to an undrawn $450 million revolver facility due July 2024 and expectation of very modestly positive free cash flow generation over the next year despite increase in capital spending.  The very good cash and liquidity position provide considerable flexibility to manage through a period of weak earnings, and to reinvest through capital improvements and acquisitions. Alterra also has flexibility to adjust capital spending depending on operating performance to preserve cash if necessary. Moody's believes it is less likely that Alterra will repay the debt issued during the pandemic to bolster cash and liquidity, and that the company will instead utilize the cash for growth investments.  This should lead to a decline in gross debt-to-EBITDA leverage over the next 3-5 years even if an economic slowdown or poor weather negatively affects a particular ski season.

Alterra's environmental risk exposure results from physical climate, water management, and natural capital risks. Physical climate risk is due to exposure to changing weather that could result from climate shifts and the reliance on cold weather activities. The geographic diversity of the company's properties is good but does not fully mitigate the physical climate risks. Water management risk reflects the need to access large quantities of water, which require additional investment to ensure sufficient water availability and access rights. Water availability may be challenging following periods of severe drought. Natural capital risk reflects that the company is responsible to properly operate and protect the vast amount of forest land and mountains. Energy needs are also meaningful.

Alterra's social risk profile reflects exposure to customer relations and human capital risk. Most of Alterra's workers at its mountains and resorts are hourly wage workers that tend to have seasonal turnover. Additionally, staffing at expensive resort towns is also challenging due to lack of sufficient affordable housing for workers. Investments in dormitories and wages to attract and retain staff consume cash and can weaken margins. However, Alterra's geographic diversity and pricing power helps to partially mitigate this risk. Alterra experienced challenges keeping its facilities and resorts fully staffed in the past ski season, which negatively impacted its customer relations. Additionally, customer relations risk is due to the need to invest in facilities and maintain strong service offerings to sustain consumer demand. The company also has exposure to data security and customer privacy risk as the company has access to sensitive customer information such as credit card numbers and personal information.

Alterra's governance risk is linked primarily to risk related to financial policy with its relatively aggressive growth through acquisition strategy and its private equity ownership by KSL Capital Partners with a minority position held by family office/investment firm Henry Crown & Company. Alterra has been a consolidator in recent years and has completed four acquisitions of ski resorts since its inception in 2017,  with each acquisition partially funded with incremental debt. Moody's expects the company to continue to be a consolidator. As a private company, reporting is more limited than public companies. Alterra's board is comprised mostly of representatives from the controlling shareholders and management. Concentrated decision making creates potential for event risk and decisions that favor shareholders over creditors.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable outlook reflects Moody's expectation that stable ski demand will allow the company to maintain debt-to-EBITDA in a high 4x range in fiscal year July 2023 despite potential cost pressures. The stable outlook also reflects that the company's very good liquidity provides considerable flexibility to reinvest and manage should earnings be weaker than expected.

The ratings could be upgraded if Alterra continues to grow organically while sustaining debt-to-EBITDA below 4.0x, retained cash flow (RCF) -to-net debt exceeds 17.5%, and the company maintains very good liquidity. The company would also need to sustain good reinvestment in operations to maintain strong consumer demand to be considered for an upgrade.

The ratings could be downgraded if debt-to-EBITDA is sustained above 5.0x, or RCF-to-net debt falls below 7.5%. Weak reinvestment, visitation declines, or margin deterioration could also lead to a downgrade. In addition, if there is a material weakening of liquidity for any reason, or the company's financial policies become more aggressive, including undertaking a large debt-funded acquisition or the payment of dividends, the ratings could be downgraded.

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Headquartered in Denver, Colorado, Alterra Mountain Company (“Alterra”) is owned and controlled by an investor group comprised of private equity firm KSL Capital Partners with a minority position held by family office/investment firm Henry Crown & Company. Through its subsidiaries, Alterra is one of North America's premier mountain resort and adventure companies, operating 15 destinations in the US and Canada. The company also owns Canadian Mountain Holidays, a heli-skiing operator and aviation business. Alterra is private and does not publicly disclose its financials. During the twelve months ended April 30, 2022, the company generated revenue of about $1.6 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of  the guarantor entity.  Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.



Joanna O'Brien

Vice President – Senior Analyst

Corporate Finance Group

Moody's Investors Service, Inc.

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New York, NY 10007

U.S.A.

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653


John E. Puchalla, CFA

Associate Managing Director

Corporate Finance Group

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653


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Moody's Investors Service, Inc.

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JOURNALISTS: 1 212 553 0376

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