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Rating Action:

Moody's downgrades Parq Holdings' CFR to Caa1; outlook changed to negative

22 Jun 2018

$291 million of debt rated

Toronto, June 22, 2018 -- Moody's Investors Service downgraded Parq Holdings Limited Partnership's (Parq) corporate family rating (CFR) to Caa1 from B3, probability of default rating to Caa1-PD from B3-PD, and senior secured term loan ratings to B2 from B1. The ratings outlook was changed to negative from stable.

"Parq's CFR was downgraded and the outlook changed to negative to reflect materially weaker first quarter 2018 results than we expected, weak liquidity and expected leverage of 14x, which may improve, but will likely be maintained above 10x in the next 12 to 18 months", said Peter Adu, a Moody's Vice President and Senior Analyst.

Ratings downgraded:

Corporate Family Rating, to Caa1 from B3

Probability of Default Rating, to Caa1-PD from B3-PD

$246 million senior secured first lien term loan due 2020, to B2 (LGD3) from B1 (LGD3)

$45 million senior secured delayed draw term loan due 2020, to B2 (LGD3) from B1 (LGD3)

Outlook Actions:

Outlook, Changed to Negative from Stable

RATINGS RATIONALE

Parq's Caa1 CFR is constrained by: (1) Moody's expected leverage (adjusted Debt/EBITDA) around 14x for its first year of operation (2018) and the likelihood that the metric will be maintained above 10x in the next 12 months thereafter; (2) heightened refinancing risk in December 2020; (3) weak liquidity; (4) single location and ramp-up risks associated with its new casino and hotel resort; (5) saturation of gaming and lodging facilities in the Lower Mainland of British Columbia; and (6) small scale relative to key Canadian peers. The company benefits from: (1) its attractive location; (2) Marriott Hotel's brand strength, and (3) the demonstrated willingness of its private owners to inject equity for cost overruns and delays in the past, which may continue, but is not assured.

Parq has weak liquidity. The company's source of liquidity is its cash balance of C$21 million at Q1/2018 while it has uses of about C$14 million in the next four quarters. The company has no external revolving credit facility and Moody's expects free cash flow of negative C$10 million and C$4 million of term loan amortization in the next four quarters, which leaves minimal excess liquidity. Parq has a C$15 million minimum liquidity covenant that will be breached in 2018. However, Parq's private owners have injected capital to fund cost overruns and delays during the construction phase of the resort. Moody's believes the owners will have to inject liquidity into the company to keep it operating. Parq has limited ability to generate temporary liquidity from asset sales.

The negative outlook considers that Parq's liquidity will be insufficient to support its operations in the next 12 months. The negative outlook also signals Moody's default concerns as the company may not be able to expand EBITDA or repay debt to reduce leverage meaningfully prior to the maturity of its $291 million in term loans in December 2020.

The rating will be downgraded if EBITDA and free cash flow do not expand meaningfully or if Moody's perceives that there is increased risk of a debt restructuring or default. The rating will be considered for upgrade if the company is likely able to maintain adequate liquidity and sustain leverage below 8x (14.1x expected for 2018) and EBIT/Interest above 1x (0.1x expected for 2018).

The principal methodology used in these ratings was Gaming Industry published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Parq Holdings Limited Partnership, headquartered in Vancouver, British Columbia, owns a new 775,000 square foot casino and hotel resort in downtown Vancouver. Parq is privately-owned by Dundee Corporation, PBC Group and Paragon Gaming (45.9%, 32.2% and 21.9% respectively). Revenue for the two quarters of operation, ended March 31, 2018 was C$71 million.

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.

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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.

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Peter Adu, CFA
VP-Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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