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Rating Action:

Moody's assigns first-time (P)B2 CFR to Imperial Pacific; (P)B1 to secured bonds

13 Sep 2016

Hong Kong, September 13, 2016 -- Moody's Investors Service has assigned a first-time provisional (P)B2 corporate family rating (CFR) to Imperial Pacific International Holdings Limited (Imperial Pacific).

At the same time, Moody's has assigned a provisional (P)B1 senior secured rating to the proposed USD bonds to be issued by Imperial Pacific International (CNMI), LLC.

The rating outlook for Imperial Pacific International Holdings Limited is stable.

The bonds will be guaranteed by Imperial Pacific International Holdings Limited.

The proceeds from the proposed bonds issuance of up to USD480 million will be placed in an account that will only be used to finance the development of Phase I of the Saipan Project, the Grand Mariana.

The provisional status of the ratings will be removed upon completion of the bond issuance with all satisfactory terms and conditions met.

A reassessment of the ratings would be needed if the bonds do not materialize as planned.

RATINGS RATIONALE

"The (P)B2 CFR reflects the key strengths of Imperial Pacific's casinos in Saipan, including its monopoly status in Saipan's gaming market, as well as the island's favorable tax regime for casinos and its friendly visa policy for Chinese visitors, the major customers of its casinos," says Kaven Tsang, a Moody's Vice President and Senior Credit Officer.

"At the same time, the rating considers the company's exposure to the high execution risks associated with the development of Grand Mariana, a new casino and hotel project, and the short track record of Imperial Pacific and the island of Saipan in the gaming business," adds Tsang.

The company is also exposed to the risks of cost overruns and delays in the completion of the Grand Mariana project.

On the other hand, these challenges are partly tempered by the strong gaming revenue generated by its temporary casino.

The company's credit profile will improve as it completes the project and commences operations in 2017.

Imperial Pacific's focus on VIP gaming and its operation in a single location expose it to operating volatility and the evolving regulatory environment in Saipan's gaming market. This strategy also increases the company's working capital needs and the credit risk in relation to its customers.

However, this risk is to some extent mitigated by the cooperative attitude of the regulators in Saipan and the ability to offer more attractive commissions to junkets and VIP customers, aided by the absence of a gaming tax.

Imperial Pacific's initial financial leverage is high because the Grand Mariana project is predominantly funded by debt. However, its debt/EBITDA will improve to around 3.0x in 2017 from around 5.0x for 2016 as the new casino starts generating incremental earnings. This projected leverage solidly positions the company at the B2 rating level and provides some buffer against potential operational and financial volatilities.

However, whether the company can consistently maintain such a low level leverage over the next 2-3 years remains uncertain, because this factor depends on the development plan and the funding arrangement for the subsequent development of a casino resort in Saipan.

Imperial Pacific has a weak liquidity profile, because of its large capex requirements. However, the successful issuance of the proposed bonds and other fund-raising activities, if they materialize, should improve its liquidity to an adequate level.

The (P)B1 rating on the proposed US$ bonds reflects the first lien on the company's major operating assets, including the property of the Grand Mariana project and the gaming license. This structure means that the bonds rank ahead of other unsecured claims and indebtedness.

Additionally, the company will maintain 12 months of interest expenses (on a rolling 12 month basis) in a reserve account for the life of the bonds.

The rating outlook is stable, reflecting Moody's expectation that Imperial Pacific's operating profile will stabilize over the next 12 months, as the company begins to operate the new casino and hotel, while managing execution risks without material problems.

The ratings could be upgraded over the next 12-18 months if the company 1) successfully completes and ramps up Grand Mariana; and 2) demonstrates adequate financial capacity and prudence to execute future expansion plans.

Financial indicators of an upgrade include adjusted debt/EBITDA below 4.5x and EBITDA/interest above 4x on a sustained basis.

On the other hand, the ratings may come under downward pressure should there be a material deterioration in the liquidity and financial profiles of Imperial Pacific. This may emerge if 1) there is a material delay in the completion of the Grand Mariana project; 2) demand for Grand Mariana falls below expectations, or construction costs increase materially above expectations, leading to additional debt-funding requirements or a significant deterioration in liquidity; or 3) there is aggressive debt-funded development of new casinos.

Financial indicators of a downgrade include adjusted debt/EBITDA above 6x and EBITDA/interest below 3x on a sustained basis.

The principal methodology used in these ratings was Global Gaming Industry published in June 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Imperial Pacific International Holdings Limited is a holding company listed on the Hong Kong Stock Exchange. Through its 100% owned subsidiary -- Imperial Pacific International (CNMI), LLC -- it holds an exclusive gaming license for the island of Saipan, the Commonwealth of the Northern Mariana Islands (unrated).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 ratings tab on the issuer/entity page for the respective issuer on www.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.

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

Please see www.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 ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Kaven Tsang
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

No Related Data.
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