Credit-debt watcher Fitch Ratings, Inc. has sounded alarm bells over the possibility that Saipan casino operator Imperial Pacific will default on its loans.
In a statement issued on Wednesday, Fitch announced that it has downgraded the credit rating of Imperial Pacific to ‘CCC’ by Fitch Ratings Inc, from the ‘B (EXP)’ expected rating assigned to it in September 2016.
The downgrade reflects the supposed “substantial credit risk” of Imperial Pacific and the ratings agency believe that there is a great chance that the firm behind the Saipan casino will default on its obligations.
Fitch based its decision on the assumption that assumption Imperial Pacific’s casino would be offering commission rates of 1.40 percent to VIP players it recruited directly; and 1.85 percent to junket operators in the period 2016 to 2019.
“The downgrade of the final ratings reflects the company’s need to fund advances to customers and bear customers’ credit risk due to the lack of licensed junket operators in Saipan,” Fitch said. “So far only one junket has been licensed by the Commonwealth Casino Commission of Saipan.”
From ‘BB-(EXP),’ the credit debt watcher also downgraded the casino resort investor’s proposed U.S.-dollar senior secured note issue to an expected ‘B-(EXP)’ rating. Based on Fitch definitions, the ‘B’ category ratings indicate an investment is “highly speculative” and that “material credit risk is present.” The recovery rating remains at ‘RR2′.
“Thus, IPI [Imperial Pacific] has been operating its VIP business through third-party introductions and internal marketing, with IPI granting credit directly to VIP customers who are partly backed by guarantors. Fitch believes IPI’s receivable days have expanded well beyond 100 days in view of the strong VIP rolling chips volume in the past six months,” Fitch said. “Proposed notes, which will be issued by Imperial Pacific International (CNMI) LLC (Saipan), are rated two notches above IPI’s issuer default rating because they are secured by essentially all the assets of the casino and resort under construction and guaranteed by Imperial Pacific Properties (CNMI) LLC, which owns the lease of the land on which the resort is built, and by the parent, IPI.”
