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‘IMPROVEMENT NOT ENOUGH’: del Lago credit rating downgraded again as 2019 begins

A new report from Moody’s Investors Service says del Lago Resort & Casino, located in Tyre, is struggling financially amid significant debt load, and lower-than-expected revenue.

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Moody’s on Thursday lowered the casino’s bond rating and retained the casino’s negative outlook, warning the $440 million facility may end up having to restructure its debt.

“The downgrade and the negative outlook consider that despite a slight pickup in Lago’s monthly gaming revenue, this improvement is not enough to alleviate Moody’s concern that Lago will be challenged to support its annual fixed charges of about $50 million going forward,” Keith Foley, a senior vice president at Moody’s, said in a statement.

del Lago finished its first year with about $147 million in revenue — roughly 44 percent lower than it estimated to the state when it was awarded a casino license.

Last year, the resort’s owner, Thomas Wilmot, a Rochester-area developer – called for Albany to ‘level’ the playing field against competing Native American-owned facilities, which were operating without tax implications – giving them a significant business advantage.

In its report Thursday, Moody’s said, “Lago’s ramp up in terms of gross gaming revenue continues be at a level well below expectations.”

They continued, adding that current estimations mean the casino may not be able to cover its debt and operating expenses. “As a result, without further equity investment of some type — the company contributed about $11 million of cash equity earlier this year as part of a covenant amendment — Moody’s is of the opinion that Lago will require a restructuring that involves some level of impairment,” Foley continued.

The Press Release from Moody’s

Moody’s Investors Service today downgraded Lago Resort & Casino, LLC’s (Lago) Corporate Family Rating to Caa3 from Caa2 and Probability of Default Rating to Caa3-PD from Caa2-PD. At the same time, Lago’s 1st lien revolver and term loan were downgraded to Caa2 from Caa1, and its 2nd lien term loan was downgraded to C from Caa3. The rating outlook remains negative.

Lago owns and operates the del Lago Resort & Casino in Waterloo, N.Y. del Lago opened in February 2017 and is located between the cities of Rochester and Syracuse, about 50 miles from each.

“The downgrade and the negative outlook consider that despite a slight pickup in Lago’s monthly gaming revenue, this improvement is not enough to alleviate Moody’s concern that Lago will be challenged to support its annual fixed charges of about $50 million going forward,” stated Keith Foley, a Senior Vice President at Moody’s.

Lago’s ramp up in terms of gross gaming revenue continues be at a level well below expectations, and at a rate that Moody’s believes will not generate enough EBITDA to cover the company’s interest and scheduled principal repayments during the next 12-18 months,” added Foley. “As a result, without further equity investment of some type — the company contributed about $11 million of cash equity earlier this as part of a covenant amendment — Moody’s is of the opinion that Lago will require a restructuring that involves some level of impairment.”

Downgrades:

..Issuer: Lago Resort & Casino, LLC

…. Probability of Default Rating, Downgraded to Caa3-PD from Caa2-PD

…. Corporate Family Rating, Downgraded to Caa3 from Caa2

….Senior Secured 1st Lien Bank Credit Facility, Downgraded to Caa2 (LGD3) from Caa1 (LGD3)

….Senior Secured 2nd Lien Bank Credit Facility, Downgraded to C (LGD6) from Caa3 (LGD5)

..Issuer: Lago Resort & Casino, LLC

….Outlook, Remains Negative

RATINGS RATIONALE

Positive rating consideration is given to del Lago’s ability to offer live table games which are not available at nearby racinos. The closest full scale casino to del Lago is the Oneida Indian Nation’s Turning Stone Resort Casino (unrated) located in Verona, New York — about 75 miles east of del Lago. However, while located further away from del Lago than Turning Stone, we consider the Seneca Nation casino to be a direct competitor to Lago in that it markets aggressively to customers in Rochester. Both the Oneida and Seneca tribes also have a more favorable tax regime than del Lago and the racinos.

Key credit challenges include Lago’s slower than expected ramp up, single asset profile, and the highly competitive nature of the market which it operates that may impede the company’s ability to support its capital structure. There are five gambling facilities, including four racinos and one Native American full scale casino within 100 miles of del Lago’s location.

The negative rating outlook considers Moody’s expectation that without a substantial improvement in the rate and degree of ramp-up and/or an additional equity investment by the owners, Lago will not be able to achieve a level of performance that can support its existing debt capital structure. The company’s rating would be lowered if a debt restructuring that involves impairment to existing lenders occurs. A higher rating requires a high degree of confidence on Moody’s part that Lago will be able to maintain its current debt structure through enough of an improvement in its financial performance and/or a sufficient equity investment.

Lago is a joint venture between Wilmot Gaming, LLC and PGP Investors, LLC (aka, Peninsula Pacific) and is managed by JNB Gaming, LLC. Lago is a private company and does not publicly disclose its financial information.

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.

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.

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