Montreign Operating Company, LLC

About

Resorts World Catskills is owned and operated by Montreign Operating Company, LLC, an indirect wholly-owned subsidiary of Empire Resorts, Inc., a gaming and entertainment corporation which has operated in the Catskills since 1993.

Corporate Highlights

8/12/2019: Montreign Operating Company: May File Chapter 11

Resorts World Catskills is owned and operated by Montreign Operating Company, LLC, an indirect wholly-owned subsidiary of Empire Resorts, Inc., a gaming and entertainment corporation which has operated in the Catskills since 1993. On August 9, Empire Resorts, stung by heavy losses from under-performance at its facility, raised the possibility of a voluntary Chapter 11 filing.

As a result, we’ve reduced the company’s Corporate Credit Rating from CCR 3 to CCR 4- Worry List. There are 3 BDCs – all in the senior debt with $67mn at cost outstanding: PennantPark Floating Rate (PFLT), CM Finance (CMFN) and Business Development Corporation of America (BDCA). Most recently PFLT discounted its debt by (18%), but that may prove too conservative if Chapter 11 occurs. The other two BDCs- whose valuations dates back to March – have discounts of (8%) and (9%), and are likely to be taking bigger reserves for loss when their second quarter results come out.

BDC Credit Reporter View

8/14/2019:  From news reports (see Investment Highlights) we’ve learned more about Montreign’s debt structure and likelihood of bankruptcy, which seems high. On PFLT’s Conference Call on August 8 , there was a good deal of optimism about the eventual resolution of this situation from a lender’s perspective. We are more pessimistic than PFLT and are far from certain that this is a “par piece of paper”.

8/12/2019:  This has been a BDC linked loan since IVQ 2016. For several quarters – even as the BDCs involved marked the debt close to par – we carried the investment as under-performing because of concerns about the project nature of the transaction. However, when the owner received a capital infusion we relented and – briefly – returned the investment to performing status. In the IQ 2019, though, PFLT discounted the senior secured debt by more than (10%) and, by our system, that brought the credit back into under-performing status, or CCR 3. Now with the news the Malaysian owners are considering Chapter 11 – and with little likelihood that the fundamentals of lower than expected attendance and customer spending is likely to change in the short run – we’re right back where we started, and worse. How this plays out and what sort of haircut the lenders might have to take is still not clear, but the chances of a sudden interruption of $7.3mn of investment income has just become highly likely.

Highlights

8/13/2019: More details on potential Chapter 11

Empire’s long-term debt of US$533.68 million includes the Term A Loan amounting to US$60.4 million and Term B Loan totalling US$439.1 million. The Term A Loan will mature on Jan 24, 2022 and the Term B Loan on Jan 24, 2023, according to the filing with the SEC.

8/12/2019:  Reduced rating to CCR 4 following news of possible bankruptcy. See Corporate Highlights.

8/8/2019: Arthur Penn of PFLT discusses company on CC:

“Montreign is — the equity there is controlled by an entrepreneur named KT LIM, who’s well known in the gaming sector. He controls Genting, which is a large gaming company. Montreign is owned in a public company called New York, New York. NYNY is the ticker. KT LIM has made an announcement that he wants to take NYNY private. He already owns 80-plus percent of it. At the enterprise value that he’s proposed to take the company private, it values the equity around $300 million. That $300 million of equity, of course, is junior to $500 million of debt. Montreign, we own a piece of the Montreign debt, which, today, is marked in the mid-80s or so. We still think it’s at par. Obviously, if the entrepreneur behind it is valuing the equity at $300 million beneath the debt, we think the debt is at par. The entrepreneur is indicating that he thinks the debt is par. We’ll see. We think we have a fairly full position right now in PFLT, so we’re not going to add any more debt. But for all those of you in the market who want to buy what we think is very attractive piece of paper that is broker-dealer quoted in the mid-80s, Montreign first-lien debt is and we think it’s going to end up being a par piece of paper”.

IIIQ 2018: Added to Watch List (CCR3) on valuation and research.