Sunday, September 28, 2008

The Tribe In The Media: More On Mohegan Halting Hotel Construction

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This installment in The Tribe In The Media series is an article from the Las Vegas Review Journal which describes simply why the Mohegan Tribe had to halt its hotel construction. Keep in mind that bank and bond covenants are agreements made between the lender and borrower. Mohegan's bank and bond covenants include limits on the Mohegan Tribal Gaming Authority's (MTGA) debt levels. If MTGA continued to move ahead with its Project Horizon, it probably would have violated its bank covenants.

It's plain that pain's a regular refrain
Las Vegas Review Journal
September 28, 2003

It's plain that pain's a regular refrain The delay of a $734 million expansion at the Mohegan Sun casino in Connecticut says as much about the economic state of the gaming industry as the Aug. 1 announcement by Boyd Gaming Corp. that it was halting construction of the $4.8 billion Echelon.

Financially, all is not well.

Deutsche Bank analyst Andrew Zarnett thought the Mohegan Tribe made a wise move in pushing back construction of a 922-room hotel tower and House of Blues theater by at least a year. He had a similar reaction when Boyd put the brakes on Echelon.

"This suspension is likely to last longer due to deteriorating industry fundamentals along with the need to potentially redo bank and bond covenants," Zarnett told investors.

He also said historical high leverage levels permitted by banks are a thing of the past.

The casino industry is facing an increasingly difficult economic environment that is pressuring cash flows and balance sheets.

The Mohegan Sun and the massive Foxwoods resort are the only two casinos in Connecticut. The tribal properties have seen gaming revenues decline 5.5 percent this year due to competition from Rhode Island and New York casinos. Also, the weakening economic climate in New York City has impacted the casinos' key feeder market.

Mohegan Sun has been trying to keep up with Foxwoods, which opened a $700 million hotel expansion in conjunction with MGM Mirage last spring. However, Zarnett said the Mohegan tribe could have breached its covenants with bond holders had construction continued.

The collapsing credit markets have delayed or killed many casino projects. On the Strip, Crown Las Vegas is dead and a $5 billion development on the New Frontier site is on life support. In Atlantic City, Pinnacle Entertainment slowed a $2 billion Boardwalk project.