Below is a release from Caribbean ratings agency CariCris.
Further to our rating downgrade effected on July 21, 2020, Caribbean Information & Credit Rating Services Limited (CariCRIS), the region’s credit rating agency, has today further lowered the ratings on the J $1.1 billion or US $8 million bond issue of Mystic Mountain Ltd (MML or the Company) to CariC (Foreign Currency Rating (FC) and Local Currency Rating (LC)) on the regional rating scale and jmC on the Jamaica national scale (FC and LC). These ratings indicate that the level of creditworthiness of this debt obligation, adjudged in relation to other obligations in Jamaica and the wider Caribbean, is poor.
This rating action is based on the precipitous decline in MML’s financial position brought on by the lockdown measures effected due to the coronavirus pandemic (COVID-19). In March 2020, the Government of Jamaica introduced several measures to prevent the local spread of COVID-19 including the temporary restrictions on inbound travel and the closure of all tourism-related attractions including MML. These measures have had a significant impact on the Company’s financial operations through the loss of revenue resulting in MML having to utilize funds held in its debt service reserve account to fulfill the coupon payments which became due in March, June, and September 20201. MML is currently negotiating with its bondholders to (i) defer principal and interest payable in December 2020, as well as March and June 2021, with all deferred interest to be capitalized, (ii) all principal and capitalized interest to be repaid in full upon maturity of the bond in 2025 and (ii) defer the bond covenants. Our further lowering of the rating today is based on our assessment that the default probability has increased over the past months since our last rating action, given that the negotiations with bondholders have not yet been concluded.
Since the resumption of operations in July 2020, MML’s operations have been limited to residents on weekends only and tourists on Wednesdays only. While the response from its patrons to the reopening of MML’s park has been good thus far, cash per client (CPC) is considerably lower than in previous years. Additionally, the reduced capacity and reduced days of operations have constrained earnings, with revenue for the 3 months ended September 2020, being 77% lower than the outturn for the corresponding prior-year period.
1 MML is currently in breach of its requirement to maintain a balance in its debt service reserve account equivalent to 6-months interest payments
For the 3 months ended September 2020, MML recorded a loss before tax of US $600 thousand compared to a loss before tax of US $136.6 thousand for the corresponding prior year period. The Company’s gross profit margin for the period improved to 93.1% from 70% previously, reflecting a 95% decline in cost of sales for the period. While the change in the Company’s operations resulted in lower expenses from almost all categories, MML’s other expenses increased by US $23.7 thousand to US $183.2 thousand due to improvements made by the Company to facilitate new public health protocols (sanitization and screening) to reduce the risk of patrons spreading/contracting COVID-19 at the park. Between July and September 2020, MML’s receivables and payables increased by US $17 thousand and US $168.3 thousand respectively, as the Company adjusted its cash flow management strategy in response to lower business activity and earnings. This resulted in negative operating cash flows of US $45.1 thousand for the period. Additionally, MML acquired a US $1 million short-term loan to fund its operations, to be repaid within 1-year. As at September 2020, MML held cash balances of US $353.3 thousand, which gives MML the ability to settle its bond obligation of US $302 thousand due on December 30, 2020. However, this will result in the Company needing additional loan funding and/or requiring a capital injection to continue operations.
CariCRIS will continue to closely monitor developments at MML over the coming weeks, as we seek more information on the ongoing negotiations with bondholders. Should (i) MML be able to acquire a moratorium on principal which becomes due December 2020 and restructure its debt (ii) the Company regain a steady revenue stream over the next 10-12 months near 50%-75% of pre-COVID levels, our ratings can be increased.