In another update of "The Tribe in the Media" series, below are two recent articles from Bloomberg News Service:
Tribal Bonds May Lose as Massachusetts Eyes Casinos
By Oliver Staley
Jan. 17 (Bloomberg) -- Bondholders in Connecticut's Mohegan Sun and Foxwoods Resort Casino, the nation's two biggest casinos, may be the losers and shareholders in Las Vegas Sands Corp. the winners if Marilyn Souza has a choice.
Souza, a retiree from Franklin, Massachusetts, treks 90 miles (144 kilometers) almost every week to gamble at Mohegan Sun, operated by the Mohegan Tribal Gaming Authority. "I'd rather see Massachusetts get the money,'' said Souza, 57.
She will get her wish if Governor Deval Patrick brings Las Vegas-style gambling to Massachusetts. Patrick is counting on legislative approval this year and has the support of more than half of state residents, according to one poll. If casinos open and Connecticut tribes are shut out, revenue for current properties could fall 20 percent and reduce earnings before interest, taxes, depreciation and amortization as much as 30 percent, according to Wachovia Securities.
"That will definitely impact the bonds. Ebitda is the most important factor to service debt,'' said Dennis Farrell, a Wachovia analyst in Charlotte, North Carolina. "When Massachusetts does go online, the profit margins are going to be deteriorated for both.''
Farrell declined to give a precise estimate for the impact on the bonds.
Bondholders in Trump Entertainment Resorts Inc. in Atlantic City, New Jersey, saw a decline in the value of their holdings in 2007 after six slot-machine parlors opened in neighboring Pennsylvania.
Ebitda for Trump's three Atlantic City casinos may have dropped 3 percent last year, estimates compiled by Bloomberg show, as revenues at the city's 11 gambling facilities declined 5.7 percent.
The decline contributed to a 15 percent loss for Trump's $1.25 billion of 8.5 percent notes due 2015 last year. The debt fell about 23 cents in 2007 to 77 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The Mohegans and the Mashantucket Pequot Tribal Nation, owner of Foxwoods, currently obtain about 25 percent of revenues from Massachusetts gamblers. Players from Connecticut and New York provide most of the rest.
Mohegan Tribal Gaming's $150 million of 6.875 percent debt due in 2015 has fallen to 92.4 cents on the dollar from about 101 cents at the beginning of last year, according to data compiled by Bloomberg. The debt yields 8.3 percent. The Pequot tribe has $500 million of 8.5 percent notes due in 2015. The bonds have fallen to 98.3 cents from 100 cents when they were issued in November. The debt yields 8.8 percent.
Increased competition would hit bonds maturing after 2012, the earliest Massachusetts casinos could open, Farrell said. Mohegan has more than $800 million in outstanding bonds that mature in 2012 or later, according to Bloomberg data.
Capital Research & Management Co., a Los Angeles-based investment firm that is the largest owner of Mohegan bonds, declined to comment, said spokesman Chuck Freadhof.
Patrick, 52, has proposed licensing three casinos, requiring a capital investment of $1 billion each, to create 20,000 permanent jobs and win back as much as $900 million in revenue lost to its neighbor. A University of Massachusetts poll released Oct. 5 said that 55 percent of residents approve of the governor's plan, while 27 percent oppose it.
House Speaker Salvatore DiMasi, who in 2006 opposed legislation to add slot machines at racetracks, has said he is skeptical of Patrick's bill. Patrick, however, made passage a legislative priority and may include $800 million in license fees in the 2009 budget to encourage action.
DiMasi's spokesman David Guarino didn't return calls asking for comment. Patrick wasn't available to comment, said spokeswoman Becky Deusser.
Harrah's Entertainment Inc. and Las Vegas Sands, both led by executives with local roots, are favored by analysts to win licenses. Shares of Las Vegas Sands, run by Sheldon Adelson, would climb if a casino law passes, said Robert LaFleur, an analyst with Susquehanna Financial Group in Stamford, Connecticut. The operator is a "clear favorite,'' LaFleur said.
Las Vegas Sands would invest if it could receive a return of at least 15 percent of its investment, said Bill Lerner, an analyst at Deutsche Bank in Las Vegas, who recommends buying the shares. That could yield annual Ebitda of $150 million given Patrick's proposal and add $2 a share to its stock price, based on a sum-of-the-parts valuation, he said.
"A Lot of Interest"
"It's a market we have a lot of interest in. I think it would be a vibrant business,'' said Harrah's Chief Executive Officer Gary Loveman, in a November interview in Las Vegas.
The Connecticut tribes are exploring casinos in Massachusetts as well. The Mohegans have proposed a 4,000-slot machine facility in Palmer, 90 minutes from Mohegan Sun. Foxwoods is teaming with Las Vegas-based MGM Mirage and is looking at sites in Warren and Revere.
The Mohegans are "very interested'' in Massachusetts, said Mitchell Etess, chief executive officer of Mohegan Sun, in a December telephone interview.
A Massachusetts tribe, the Mashpee Wampanoags, purchased land in Middleborough, about 45 minutes from Boston, for a possible casino. The group joined with Sol Kerzner and Len Wolman, Mohegan Sun's developers. Patrick said he wants the Wampanoags to participate in the bidding.
Foxwoods and Mohegan Sun already compete with video lottery terminals at Yonkers Raceway outside New York City and in Newport and Lincoln, Rhode Island.
"We've always known there would be more competition in New England,'' said Etess. "We know there is a potential for loss, so you have to do other things to build revenue.''
The Mohegans opened a slots-only casino in Pennsylvania in 2006 and are pursuing a license in Kansas. Foxwoods is developing a Philadelphia casino it hopes to open in 2009 and is an applicant in Kansas. The two tribes are investing a combined $1.7 billion to improve the Connecticut properties.
Competition from Massachusetts could raise the cost of bond issues to pay for future expansion, said Michael Paladino, an analyst at Fitch Ratings in New York. If Foxwoods and Mohegan Sun "get shut out of Massachusetts, there would definitely be a negative impact to their credit.''
To contact the reporter on this story: Oliver Staley in New York at email@example.com . Last Updated: January 17, 2008 18:29 EST
Lower Earnings Jeopardizing Foxwoods’ Credit Rating
Saturday, January 19, 2008
By Oliver Staley
(Bloomberg News)-The Mashantucket Western Pequot Tribal Nation, the owner of Foxwoods Resort Casino, may get its credit ratings cut by Moody’s Investors Service because of lower earnings and increased regional competition.
Foxwoods, the largest U.S. casino by casino-floor space, said first-quarter earnings before interest, taxes, depreciation and amortization fell $23 million, Moody’s said yesterday. The review affects $1.5 billion in bonds, including Baa3 issues that may be cut to below investment grade.
Increased competition, lower-than-expected earnings and a possible consumer-based recession may make it “more difficult” for Foxwoods, based in Mashantucket, Conn., to meet its obligations for the current ratings, Moody’s said in a release. The rating change would probably be limited to one level, it said.
Foxwoods faces competition from the Mohegan Sun casino, operated by the Mohegan Tribal Gaming Authority, 10 miles away in Uncasville, Conn., and regional video-lottery terminals.
Racetracks in Lincoln and Newport, as well as Yonkers, N.Y., have more than doubled the number of video-lottery terminals in those locations, to 11,065, since September 2006, Wachovia Securities Inc. said in October.
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