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Parq Vancouver Refinances and Reduces Payments
The reports sounded dire. Parq Vancouver could be in debt distress. Just two weeks ago, analysts were eying the upcoming deferred interest payment that Parq Vancouver would be unable to pay.
The due date for the payment passed without the payment made, and new reports indicated that the Parq Vancouver casino sought a refinancing deal but had yet been unable to secure one.
That problem was a short-lived, though. The casino development has ultimately been able to secure a long-term financing deal with reduced interest payments.
This doesn’t solve the problem of an underperforming project in total. Nevertheless, Parq Vancouver now has time to turn it around and improve its revenue. It must overcome its first full-year loss of $153 million from 2018 and make the current year a profitable one.
Pesky Parq Vancouver Debt Payments
The $450 million second-lien term loan owas riginally put together in 2014 by a group of financers for Parq Holdings. That Parq Vancouver debt, some of which was financed at a rate as high as 12%, had a deferred interest payment due ahead of a massive $220 million first-lien term loan payment due in December 2020.
Bloomberg noted that the first-lien term loan wasn’t an immediate problem. Still, its losses in 2018 had already seen Parq Holdings downgraded below investment grade in April.
Most investors remained positive, and noted that the development had assets worth more than its loans. They also kept an eye on the continuously promising gambling market.
By May 3, Bloomberg reported that the interest payment was, indeed missed.
And by allowing the 30-day grace period to expire, S&P Global Ratings downgraded Parq Holdings to “selective default.” The investment ratings firm noted that the missed payment was likely due to its “operational underperformance,” as well as its ability to contain its debt and obtain a successful refinancing package.
Parq Holdings responded by stating that it was “close to a new equity and finance package” but hadn’t secured it yet.
S&P did note that it would reevaluate the ratings if and when that proposed refinancing of its existing capital structure was confirmed.
Done with Debt in Order
Last week, Parq Vancouver announced that the refinancing was successful. It now has a new fixed-rate, long-term financing structure resulting in an overall interest payments reduction.
The new loan comes with a lower interest rate than first obtained by the company. This is due to the casino, restaurants, and hotel now being up and running, generating income, and forecasting increasing revenue.
Payments of approximately $30 million per quarter are no longer a stumbling block. And deferred payments, they hope, will be a thing of the past. Investment ratings should subsequently upgrade Parq Holdings upon confirmation of this news.
Adjusting to Anti-Money Laundering
The opening of Parq Vancouver’s casino happened at about the same time the British Columbia government mandated anti-money laundering processes. It had been unclear how expensive it would be to implement the policies, establish processes for monitoring the systems, and training all employees to adhere to the laws.
The casino has now been open and running for more than a full year. It was therefore easier for Parq Vancouver to integrate those costs into ongoing margins. Further, the initial costs of implementing systems and training would no longer be a problem.
The issue requires attracting enough business to offset the reduced amount of VIP money. High-stakes gamblers coming from places like Macau was the source of millions in money that was being laundered through casinos, as identified by years of research and investigation. So Parq Vancouver still must adjust and find profitability in other areas.
All casinos have had to deal with the costs associated with anti-money laundering measures. However, Parq Vancouver was under more pressure as a new endeavour with many other businesses attached to the success of the casino. The losses at the new casino were substantial in 2018, as $153 million should be considered substantial, with its slots, roulette tables and blackjack tables unable to stem the tide. Nonetheless, the current year should reflect the management’s ability to adapt, compensate, and still show profit.