Peninsula Pacific Entertainment, LLC (P2E; Caa1 stable) considers that P2E’s Colonial Downs racetrack is the only racetrack qualified for HHR (”Historic Horse Racing”) terminals and that P2E holds the only HHR license in the State of Virginia and has exclusivity through 2028. HHR terminals are an electronic slot machine-like game that is a form of pari-mutuel legal horse racing wagering. Also supporting the ratings are diversification benefits related to the Hard Rock Sioux City and del Lago acquisitions over the last year.
Credit concerns include P2E’s high leverage along with concerns regarding the potential impact from any increased restrictions related to social distancing requirements and expected increase in new competition in Virginia. Also considered are the continued, albeit lessened, concerns regarding the potential impact from any increased restrictions related to social distancing requirements and the likelihood that a slow recovery to pre-coronavirus volume will sustain elevated debt-to-EBITDA leverage in a high single digit range over the next year. Key credit concerns include the inherent risks related to the relatively small size of the company in terms of pro forma revenue and earnings, continued and significant levels of competition in New York State that will continue to pressure del Lago’s earnings performance, and the potential new competition in Virginia. In April 2020, the Virginia General Assembly enacted legislation authorizing casino gambling in the state.
P2E’s ratings and outlook recognize the pro forma restricted borrowing group structure that include Colonial Downs Group, LLC, SCE Partners LLC Hard Rock Sioux City (Iowa), and del Lago Casino Resort that was folded into P2E’s restricted group structure. In October 2020, P2E acquired the 50% equity ownership of Sioux City Iowa casino (Hard Rock Sioux City) that it did not already own. The portion of Hard Rock Sioux City that was owned by P2E was outside of the company’s restricted group borrowing structure but was contributed as equity to the restricted group. Hard Rock Sioux City is a stable performing casino asset in normal economic times operating under the well-known and popular Hard Rock brand name. The del Lago facility is being contributed to the restricted group in conjunction with P2E’s proposed debt offering that will be used to repay del Lago’s debt.
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