Monday, July 21, 2008

Mashantucket Pequot Tribe Could Face Lower Credit Rating

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Both Mohegan Sun and Foxwoods reported last week that June slot machine revenue on the Reservations fell by about 9 percent compared to the same month of last year.

The difference was that Foxwoods had just opened in mid-May their $700 million expansion, which includes hundreds of additional slot machines on a new gaming floor. The expansion's failure to halt the declining slot revenues at Foxwoods prompted a major credit rating agency to put the credit rating of Foxwoods' owners, the Mashantucket Pequot Tribal Nation, under review.

An entity's credit rating could result in higher interest expenses on future borrowings.

Although Standard & Poors lowered the Mashantucket Pequot Tribe's credit rating from BBB- to BB+ last November, based in part on its high debt levels, S&P announced last week that they were once again reviewing the financial condition of the Tribe and are considering another downgrade of the Tribe's credit rating.

In May, S&P downgraded the Mohegan Tribal Gaming Authority's credit outlook from "stable" to "negative" but did not change MTGA's BB- rating.

According to S&P's rating scale, the highest rating is AAA, followed by AA, A, BBB, BB, B, CCC, and R is the worst credit rating. The positive (+) and negative (-) denote relative standings within each grouping.

Moody's, another major credit rating agency with its own unique rating scale, downgraded the Mashantucket Pequot Tribe in May while the Mohegan's MTGA has been under review by Moody's since February.

S&P recently downgraded Harrah's credit outlook from "stable" to "negative" and the rating of some of the other largest gaming concerns have been put under review by Moody's, including Las Vegas Sands and MGM. Casino revenues have fallen in the nation's two largest gambling markets, Las Vegas and Atlantic City.

Penn National Gaming was taken off a S&P's credit watch in early July and its BB- rating maintained after news that the planned purchase of the Penn National had fallen through and that Penn's suitors would be required to pay Penn $225 million in cash and a preferred stock plan that amounts to a $1.25 billion long-term interest-free loan for Penn. The substantial cash inflow is seen by analysts as giving Penn a strong advantage over its competitors.