DBRS Confirms River Cree Enterprises Limited Partnership at BB (low) and B (high), Stable

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 relatively stable operating performance in a challenging macroeconomic environment over the last year. The ratings reflect an emphasis on River Cree’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 continues to be supported by the high quality of its property relative to local competitors as well as the significant advantages of its First Nations status. Earnings have been negatively affected in 2015 by the closure of the Company’s entertainment venue, challenging weather and softened economic conditions in Alberta. As a result, EBITDA margins weakened materially because of increased promotional offerings to preserve market share, which remained steady near 31%. River Cree’s adjusted EBITDA, which includes First Nations Development Fund (FNDF) proceeds, decreased to $56 million for the last 12 months ended September 30, 2015, from $59 million in 2014. Proceeds from the FNDF have been more than sufficient to fund 90% (the maximum allowable percentage) of the Company’s debt service requirements on its term loan and notes and the Company has used its cash and free cash flow to fund the remaining amortization payments. Gross debt-to-EBITDA and EBITDA coverage have weakened moderately to 4.2 times (x) and 2.3x from 3.9x and 2.5x, 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. Despite the softened economic conditions in Western Canada, DBRS expects moderate revenue growth in the low single digits based on increasing customer traffic from promotional activity and the newly opened entertainment venue. DBRS believes that margins will remain similar to 2015 levels as revenue gains will likely be offset by higher marketing and promotional costs. As such, DBRS expects adjusted EBITDA to grow in the low single digits to approximately $60 million in 2016.

DBRS expects River Cree’s financial profile to remain stable over the medium term as the Company modestly increases its cash-generating capacity and uses FNDF proceeds to fund 90% of debt service on its term loan and notes, including scheduled repayments. DBRS estimates that operating EBITDA will grow moderately to approximately $9 million in 2016, more than sufficient to fund the $1 million of maintenance capital expenditures not covered by the FNDF proceeds and the remaining 10% of debt service requirements of approximately $3 million. As such, DBRS believes that surplus operating EBITDA will amount to $5 million in 2016. As a result of the above, 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, which can be found on our website 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.