December 18, 2009
Mashantuckets officially default on Foxwoods loans
By Brian Hallenbeck
Publication: The Day
Published 12/17/2009 12:00
COMMENTS ( 24 ) Legal ramifications in 'uncharted waters' after Mashantuckets fail to make $7.5 million interest payment
It's not the kind of milestone that warrants a parade.
Without acknowledging it overtly, the Mashantucket Pequot Tribe officially defaulted Wednesday on a $21.25 million bond-interest payment that was due in full a month earlier. At the time, the tribe made a partial payment of about $14.2 million.
Wednesday marked the end of a 30-day grace period for the balance.
The tribe, owner of Foxwoods Resort Casino and MGM Grand at Foxwoods, forwarded an inquiry about the remaining $7 million due to Joele Frank of Wilkinson Brimmer Katcher, the New York firm it hired to handle communications related to its restructuring of more than $2 billion worth of debt.
"We refer you to the Nov. 16 statement," a spokesman there said. "Use that language. We're not going to go beyond that."
In that statement, the tribe announced that "the trustee for the tribe's $500 million 8.5 percent notes due 2015 has received and distributed approximately $14.2 million of the $21.25 million semi-annual interest payment due today … The tribe does not currently anticipate the remaining amounts due will be paid within the grace period, which will result in an event of default … on Dec. 16, 2009."
Despite its inevitability, the "event" was duly noted among those involved in tribal gaming and the financing of it.
"The actual date doesn't change anything; everybody's been anticipating it," said Kevin Quigley, an attorney with Hamilton, Quigley & Twait, a St. Paul, Minn., law firm that works with tribal governments and casino operators. "We've been monitoring the (Mashantuckets') debt-restructuring. The fact that it's such a large amount and the fact that it's one of the leading casinos in the country - in the world, really - makes it significant."
The Mashantuckets' default, the latest and largest of several involving tribal casinos, "drives home the point that we're going to be working out this issue over the next 12 to 18 months as the economy works itself out," Quigley said. "We're in uncharted waters."
It's still too early to tell how the Mashantuckets' financial situation is likely to play out, Quigley said. Most experts believe a bankruptcy filing is out of the question, given sovereign tribes' status as governmental units, he said, but no federal court has yet been asked to rule on the matter.
"It all depends on three things - the patience of lenders, the ability of the Pequots to earn their way out of it and the overall economic recovery permitting both sides some breathing space," he said.
Quigley said he was aware of a case in which a financially troubled tribe and its creditors discussed forming a new casino management team, though he declined to identify the tribe. Any plan calling for outsiders to assume management of a tribal casino would be subject to the approval of the National Indian Gaming Commission, as would any change in a tribe's gaming-revenue allocation plan, he noted.
It remains unclear whether the Mashantuckets' creditors would eventually seek to limit the distribution of gaming revenue to the tribe, which relies on the income to finance its government and to provide payments to tribal members.
In late October, the tribe entered into a so-called forbearance agreement with the banks that hold a $700 million line of credit that's due in July. The agreement allows the parties to continue negotiating terms of the loan through Jan. 20. Other deadlines related to the terms of various classes of senior bonds are approaching.
Those who hold the 8.5 percent bonds affected by Wednesday's default do not expect the tribe to seek a forbearance agreement with bondholders, a source who spoke on condition of anonymity said this week.
"We do expect to receive a restructuring proposal," the source said, adding that legal action is an option if the tribe offers terms that are considered too "draconian."