DBRS Confirms River Cree Enterprises LP at BB (low) and B (high), Stable Trends

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the Senior Secured 2nd-Lien Notes (the Notes) rating of River Cree Enterprises Limited Partnership (River Cree or the Company) at BB (low) and B (high), respectively, both with Stable trends. The Notes have a recovery rating of RR5. The confirmation is based on the Company’s stable operating performance over the last year and modest debt reduction. The ratings reflect an emphasis on the Company’s single asset and market concentration and are also based on the significant benefits from the Company’s First Nations status and its leading market position.

River Cree’s earnings profile benefits from the high quality of its property relative to local competitors and the significant advantages of its First Nations status. This has led to the Company increasing its leading market share even further to approximately 32%. Access to First Nations Development Fund (FNDF) proceeds has enabled the Company to maintain industry-leading adjusted EBITDA margins of approximately 48%. As a result, River Cree’s adjusted EBITDA has grown to $59 million for the last 12 months ended September 30, 2014, from $56 million in 2013. Free cash flow before FNDF proceeds has remained positive because of stable operating cash flow and modest capex requirements. Proceeds from the FNDF have been more than sufficient to fund 90% (the maximum allowable percentage) of the Company’s debt service requirements and the Company used its free cash flow to fund the remaining amortization payments. Gross debt-to-EBITDA and EBITDA coverage have strengthened to 3.9 times (x) and 3.2x from 4.2x and 3.0x, respectively.

DBRS expects River Cree’s earnings profile to remain steady over the near to medium term as the Company maintains its leading market share and revenue/earnings growth moderates. DBRS forecasts that revenues will increase in the low-single digits through 2015 based on increasing customer traffic and Alberta’s growing economy. DBRS expects market share gains to decelerate as the majority of gains have already been made. DBRS believes that margins will continue to improve slightly as a result of the benefits of operating leverage; as such, DBRS expects adjusted EBITDA to grow in the low- to mid-single digits to almost $65 million in 2015.

DBRS expects River Cree’s financial profile to improve over the medium term as the Company modestly increases its cash generating capacity and uses FNDF proceeds to fund 90% of debt service, including scheduled repayments. DBRS estimates that operating EBITDA will grow moderately to approximately $11 million in 2015, more than sufficient to fund the $1 million of maintenance capex not covered by the FNDF proceeds and the remaining 10% of debt service requirements of approximately $3 million. As a result, DBRS expects key credit metrics to improve slightly and remain well placed within the current rating category.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Gaming Industry (November 2013), which can be found on our web site under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related
Research at the right of the screen or by contacting us at info@dbrs.com.