Future Earnings Concern for Great Canadian Gaming Corporation

Fitch Ratings, an American credit rating agency, has downgraded Great Canadian Gaming Corporation's long-term issuer default rating and senior unsecured debt assessments due to concerns over the company's earnings potential. 

The move by the New York-headquartered financial evaluations giant came after it determined the privately held casino operator is likely to experience a drop in immediate revenues from six of the gambling-friendly venues it runs in the Canadian province of Ontario. 

Prominent Player 

In 2018, the Ontario Lottery and Gaming Corporation (OLG) granted Great Canadian Gaming Corporation exclusive rights to operate four Elements Casino-branded properties, approximately 29 months after granting similar authority over the Shorelines Casino Peterborough and Shorelines Casino Thousand Islands enterprises. The OLG regulator is running these facilities under 20-year licenses, which collectively feature over 3,880 slots and more than 60 gaming tables providing poker, baccarat, roulette, and blackjack entertainment. 

However, these enterprises were forced to close during the coronavirus pandemic before being reopened in July of 2021 under strict reduced capacity limitations. Despite the lifting of these restrictions in less than eight months, the OLG continued to assist the Toronto-based company in its recovery by reducing the mandatory compensation required under its casino operating and service agreement. 

Rational Reasoning 

Fitch Ratings Incorporated stated it has now downgraded the long-term issuer default rating of Great Canadian Gaming Corporation from a score of ‘B+’ to ‘B’ due to the recent reversion of the operator’s mandatory casino operating and service agreement compensation ‘to pre-pandemic levels’. 

The ratings firm declared it has correspondingly demoted Great Canadian Gaming Corporation’s senior unsecured debt ranking owing to ‘macroeconomic-induced weakness throughout its portfolio’ and the slow pace of progress at its Great Canadian Casino Resort Toronto and Pickering Casino Resort facilities. 

These properties are being run by the Ontario Gaming GTA Limited Partnership joint venture, the casino firm established with Canadian private equity powerhouse Brookfield Asset Management in 2017 but have so far failed to meet earnings expectations. 

“In addition, Great Canadian Gaming Corporation has been impacted by several factors,” read a statement from Fitch Ratings Incorporated.

“These include enhanced mandatory photo identification requirements in British Columbia starting mid-2023, current macroeconomic challenges causing weakness in its lower-tier customer segment in British Columbia and Toronto, weather-related disruptions this winter, recently implemented contractual wage increases across various properties and an incremental $450 million term loan B Ontario Gaming GTA Limited Partnership added to fund a dividend recapitalization to its shareholders in February of 2024.”  

Positive Prognosis 

Nevertheless, Fitch Ratings Incorporated asserted Great Canadian Gaming Corporation, which is furthermore responsible for casino venues in the provinces of Nova Scotia, British Columbia, and New Brunswick, has a 'stable’ ratings outlook. It went on to describe the firm’s free cash liquidity of about $143.6 million alongside its revolving credit facility of approximately $168.5 million as ‘satisfactory’ and predicted a slight fall in its earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs rate after 2025. 

“The stable outlook reflects Great Canadian Gaming Corporation’s modest diversification across various jurisdictions and segments and long-term growth prospects in its largest market, Ontario,” read the statement from Fitch Ratings Incorporated. 

“The outlook also reflects our expectation that free cash flow after shareholder distributions will be positive starting in 2025 as Ontario Gaming GTA Limited Partnership’s operations ramp up. This assumes that management effectively manages payments and there are no near-term debt maturities or uncertainty in its future capital allocation plans.”