Sunday, September 13, 2009


Mashantucket Urged To ‘Do The Right Thing’
11 Sep, 2009 / GamblingCompliance Ltd. / Scott Longley

Any reassurance by the Mashantucket Pequot Gaming Authority that it will honour its debt obligations could lend much needed legitimacy across the tribal gaming sector and would set a good example for other indebted tribal gaming operators, according to analysts at rating agency Moody’s.
The Mashantucket Pequot’s decision in late August to hire a financial advisor heightened fears that the operator behind the Foxwood’s Casino in Connecticut might be considering a default on its $1.5bn debt load. The move saw both Moody’s and Standard & Poor’s downgrade the tribe’s rating by three notches.

Keith Foley, senior vice president of debt research at Moody’s, said it was the lack of information from the tribe about its actions that was the main cause for the “pretty severe” downgrade.

“The two primary reasons for that were, one, the announcement was very brief which raised a lot of uncertainty in terms of what the options are or what they were thinking. In addition, the statement that they hired a financial advisor, particularly given some of the challenges in the Connecticut gaming market, suggested to us that there is always the possibility that an option could be chosen that could lead to some impairment to creditors.”

However, Foley was keen to stress that a “favourable outcome” might still be possible, and that this could have positive ramifications far beyond the confines of the Mashantucket’s own debt dilemma. “One of the things I would like to point out is that a key implication from this could be that if the Mashantucket tribe truly demonstrates that it is taking every possible step to honour its debt service obligations and they maintain strong corporate governance standards, it could set a very good example for other tribes and increase the legitimacy of lending to the Native American sector in general.”

Fears over what the Mashantucket might be planning with regard to its debt re-emerged after the tribe announced it had hired Miller Buckfire & Co to advise on possible restructuring and had “initiated discussions” with its bank group about “potential debt structure options”. Tribal chairman Michael Thomas was subsequently put on administrative leave after a Connecticut newspaper reported alleged comments from an email sent by Thomas in which he said tribal members would be paid before the banks or bondholders in any restructuring.

Foley said he held out hopes that the importance of the gaming operations to the Mashantucket tribe’s financial well-being, along with pressure from other tribal gaming authorities, might hold sway when it comes to any possible moves to default on its debt. “It is hard to understand, just like a commercial corporation, and given the importance of gaming operations to a tribe’s livelihood, why they would do something that would either try and circumvent that they agreed to or not honour their financial obligations.”

He added that it was in the interests of both the tribe and the rest of the tribal gaming community for the Mashantucket to “do the right thing”. “I’m sure that any Native American gaming operator would be concerned about any tribe, and particularly the Mashantucket, doing something that would hurt their ability [to tap the capital markets].”

One tribal gaming operator which will be viewing recent events with some concern is the Mohegan Tribal Gaming Authority which Foley pointed out would likely be looking to refinance term loans due next year. Any move by the Mashantucket to skip its debt obligations would “make it difficult” for the Mohegans, suggested Foley, and would also put pressure on the credit ratings for all tribal gaming issuers. “There are certain legal considerations in these types of financings that raise a high degree of uncertainty in terms of recovery and unique risks related to Native American gaming financings.”

Slot revenues at Foxwoods fell 13 percent in August but Foley suggested a “wild card” within the mix could be the performance of that gaming market in the next few months.

“We know the Connecticut gaming market, like many other gaming markets, is struggling a bit,” he said, adding that this “maybe the primary reason” for the moves to look at debt restructuring.

But he added: “To some degree, if the gaming revenues improve in Connecticut that certainly would help the tribe’s gaming operation and would help take the focus off the challenges related to debt service or a potential debt restructuring.”

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