The Canada Pension Plan Investment Board's loan to a New Jersey casino operator is the latest indicator of the diversity and growth of the pension fund's lending group.
The manager of the Canada Pension Plan's investment portfolio said Friday that it would provide a loan of up to $650-million (U.S.) to Marina District Finance Co. Inc., which runs the Borgata Hotel Casino and Spa in Atlantic City.
Just a few years ago, CPPIB wasn't in the business of writing private loans at all. But in 2008 it began to alter its investment strategy to build a group that focused on providing financing for companies, as other traditional lenders were constrained by the financial crisis and writing fewer loans. Since then, the CPPIB Credit Investments Inc. group has invested more than $17-billion in credit markets around the world. That includes privately placed loans, public debt, mezzanine financing and high-yield bonds.
And CPPIB is poised to be an even larger lender to U.S. companies in the future, having recently struck a $12-billion deal to buy General Electric Co.'s private equity lending business, GE Antares Capital. This business provides loans for private-equity-backed mergers and acquisitions, especially for mid-market companies.
Even before that bold move, CPPIB Credit invested in some flashier businesses. The pension fund made a foray into motorsports in 2012 when it agreed to finance a $400-million chunk of a bigger private high-yield loan for Formula One Group, the company behind F1 auto racing. At that time, CPPIB already had about $9-billion in the CPPIB Credit group, which it called Private Debt up until about a year ago. Other industries where CPPIB Credit has invested include energy, health care and aerospace.
The deal with Marina District Finance, which is owned by subsidiaries of Boyd Gaming Corp. and MGM Resorts International, takes the form of a senior secured term loan with a maturity date in 2023. Mark Jenkins, CPPIB's global head of private investments, said in a statement that the loan would provide strong cash flows and attractive risk-adjusted returns.
CPPIB also noted that "Borgata has increased its market share and continues to attract visitors from across the U.S. amid changing dynamics in Atlantic City." That's important since the East Coast gambling and vacation hub has faced increased competition in recent years as other states draw more visitors. Several Atlantic City casinos shut down last year.
Now facing less competition, Borgata's 2,800 hotel rooms command the highest average room rates and the highest occupancy rates among the Atlantic City casinos, according to figures from New Jersey's Division of Gaming Enforcement.
The resort is more than a decade old and also has 14 restaurants, an event space, and two spas. It's 161,000-square-foot casino brings in the most revenue of those in Atlantic City.