Crackdown on dirty money rattles Vancouver’s rollicking casinos
Move by B.C. government seen as reducing volume
When Parq Vancouver, a glimmering waterfront casino, opened amid much to-do in late 2017, few would’ve anticipated that a dirty money crackdown was about to throw the city’s roaring gambling business into turmoil.
Vancouver-area casinos for years had been accepting millions of dollars in questionable cash from gamblers showing up with suitcases and hockey bags bulging with bills, according to British Columbia Attorney General David Eby. But new rules implemented last year to more tightly identify sources of funds have put a damper on that rollicking trade.
“The anti-money-laundering regulations in British Columbia have been a problem,” says Andrew Hood, a Toronto-based equity analyst at M Capital Partners Inc. who covers Dundee Corp., one of Parq’s two owners. “The regulations were supposed to cut down on illicit gambling but, of course, that hurt volumes across casinos.”
For Parq, one of the province’s largest-ever private developments, the clampdown came at a delicate time.
The plan was to replace costly construction financing with cheaper debt after opening, but business picked up slower than expected amid the new restrictions. It lost nearly $153 million in 2018, according to a March 28 Dundee filing.
This week, Parq’s parent company missed an interest payment on a second-lien loan. Parq Holdings LP was downgraded to selective default from CCC by S&P Global Ratings Thursday after the expiry of a 30-day grace period.
The rating company attributed Parq’s decision to defer payment to its operational underperformance — which has affected the company’s liquidity and its ability to service its debt — as well as struggles to complete a proposed refinancing of its existing capital structure.
“Parq is solidly on track to close a new equity and finance package, replacing our existing development and construction financing,” the company said in an emailed statement.
Privately held PBC Group, an Ottawa-based real estate developer, is the majority owner of Parq with 63 per cent. Dundee, a Toronto-based public holding company with investments in agriculture, resources and real estate, owns the remainder. PBC and Dundee declined requests to be interviewed for this story.
Parq’s $220 million first-lien term loan due in December 2020, which would be paid first in the event of a default, is down just 1 per cent over the last 12 months, according to Bloomberg data.
That may be because creditors believe Parq’s assets are worth more than the loans — the resort generated $43.5 million in revenue in the three months ended Dec. 31, up 36 per cent from the same period in 2017, according to disclosures by Dundee. Interest on its senior debt hovers around 10 per cent at $22 million a year.
If not for its untimely launch, Parq would have seemed a sure bet in a city that had become a magnet for wealthy Asian high rollers known to drop more than $500,000 — source undeclared — at gaming tables.
The shimmery copper-hued casino-cum-hotel complex finally offered an upscale option in downtown Vancouver with a second-floor entrance leading directly into the neighbouring BC Place stadium — on opening night, VIPs waltzed across for a Coldplay concert. Parq was everything its kitschy rivals with their all-youcan-eat buffets in the suburbs were not: its understated decor was bathed in natural light, its elevated outdoor park boasted 200 real pines unlike the copses of fake trees at the busy River Rock Casino Resort near the airport. Its fine dining options included tea buds painted in gold. It’s two luxe hotels in one: a 329-room JW Marriott and the boutique-styled Douglas with 188 rooms.
Vancouver had also appeared a uniquely promising market.
“The revenues in Vancouver have grown consistently within the past 10 years; pretty much every other market has not seen a raise in table revenues,” Scott Menke, chief executive officer of Paragon Gaming Holding Co., the Las Vegas-based casino developer and operator that spearheaded Parq’s construction, told Bloomberg News ahead of its opening in 2017. Paragon abandoned the underperforming asset in February this year, selling its stake to PBC.
British Columbia Premier John Horgan’s government has been spearheading Canada’s anti-money laundering charge, and its hiring of an independent investigator to probe the gambling industry coincided almost to the day with Parq’s ill-timed opening in September 2017.
Dundee has said it’s seeking to bring in a new partner to Parq by Tuesday.
All told, investors had pumped more than $1 billion in longterm debt and equity into Parq by the end of 2018, according to filings.