One of the bigger credit-ratings agencies in North America has issued a stable outlook for Ontario Gaming GTA LP (OTG).
OTG, a joint venture between Great Canadian Entertainment and Brookfield, operates four casino properties in the Greater Toronto Area – Toronto Casino Resort, Pickering Casino Resort, Casino Ajax, and Great Blue Heron Casino & Hotel.
According to S&P Global Ratings in a news release, OTG, despite its heavy debt load, will return to normalized leverage of 6x by fiscal 2025. Both the newer $1 billion Toronto casino as well as its Pickering casino properties haven’t ramped up completely in terms of operations.
“We expect OTG will sustain the pace of ramp-up in operations in both its casinos such that its EBITDA for fiscal 2025 will be significantly higher than 2024,” the news release said. S&P has affirmed their “B” issuer credit rating on the company based on that outlook.
A proposed transaction to issue an additional US$450 million (CA$600 million) add-on loan, the proceeds used to fund a dividend to financial sponsors, “will add sizable debt on OTG’s already debt-heavy balance sheet … the rating affirmation reflects our expectation that OTG will strengthen its debt-to-EBITDA within a short period of time.”
The grand opening of the Toronto casino is coming up in May.
“We expect total EBITDA to grow CA$80 million-$100 million in fiscal 2025 compared with our expectation for 2024,” the statement said.
Any underperformance relative to the S&P forecasts “would pressure the ratings. However, given the high fixed costs of the business, we expect modest margin pressure for the next six to eight months, while the casinos and hotels ramp up and are fully operational. During such time, we expect OTG to explore other programs, such as including the optimization of its gaming mix, managing its food and beverage offerings across all of parent Great Canadian Gaming Corp. (GCGC), updating procurement and vendor management, and revamping its marketing strategy to manage its margin pressures.”
OTG has about CA$1.58 billion of reported debt on its balance sheet.
Fitch Rating also issued a news release this week, saying they’ve affirmed the company’s Long-Term Issuer Default Rating at B+ and downgraded the senior secured debt one notch to BB/RR2 from BB+/RR1. The Negative Outlook reflected Fitch’s expectation as well that leverage will be elevated in the near to medium term in “large part due to the add-on debt to fund a distribution to shareholders.”
Fitch also pointed to a slower than anticipated opening of casino developments in Toronto and Pickering.
“The long-term leverage profile remains uncertain, given the expectation of improved results following redevelopment, offset by the potential for aggressive dividend repatriation to sponsors,” a statement by Fitch said. “The IDR affirmation reflects OTG’s favorable regulatory environment in Canada’s largest market, the Greater Toronto Area (GTA), via a long-term agreement with the provincial regulator. The affirmation also reflects the potential for strong EBITDA growth over the medium term from OTG’s $1.4 billion CAD investment in property improvements, and satisfactory liquidity.”
