Tuesday, May 5, 2009

The Tribe In The Media: Another Viewpoint On The Mohegan Gaming Authority's Credit Rating Downgrade

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This installment of The Tribe In The Media is a New London Day article on the downgrading of the Mohegan Tribal Gaming Authority's credit rating. This article offers some different commentary, and more details, than that of the Wall Street Journal's article posted on Saturday and we feel it gives readers a better feel for the impact of the downgrade.

Foxwoods, Mohegan Sun Bonds Get Downgraded
Brian Hallenbeck
The Day
May 5, 2009

A reduction in its bond credit ratings will have no immediate impact on the Mohegan Tribal Gaming Authority, which operates Mohegan Sun, the authority's chief financial officer said Monday.

”If anything, we're not seeking any financing right now,” Leo Chupaska said.

The authority amended its line of credit with a syndicate of banks last year, a move that will enable it to pay off $330 million in debt due this summer, Chupaska said. “If we didn't have that authorization, we'd be facing some real difficulty in a high-yield market.”

Moody's Investors Service announced Friday that it was lowering the authority's corporate family and probability-of-default ratings from B2 to B3, which the service classifies as a “lower” noninvestment grade. It also lowered its ratings on $250 million of senior notes from Ba3 to B1, and on $957 million of senior subordinated notes from Caa1 to Caa 3, which it considers a “poor” grade.

”The downgrade is based on the expectation that weak visitation and spending trends in the Connecticut gaming market will make it difficult for MTGA to meaningfully reduce leverage over the near to medium term to levels acceptable to the prior rating,” Moody's said in a statement. The service also cited the authority's “larger interest burden, significant dividend obligation to the Mohegan Tribe, and increased competition.”

Keith Foley, a Moody's senior vice president, said Mohegan Sun's decline in monthly gaming revenues has accelerated this year and that it “remains vulnerable to competition from gaming and hotel capacity added by Foxwoods Resort Casino, its primary competitor, as well as from neighboring jurisdictions.”

Although Mohegan Sun at Pocono Downs, the racino the authority owns and operates in Wilkes-Barre, Pa., has increased revenues, “its contribution at this time is not enough to mitigate the cash flow decline at Mohegan Sun” Foley said.

Moody's announcement came the day after the authority announced its January-through-March results in a conference call with investors and analysts. During that call, authority executives noted that a sweeping cost-containment initiative had significantly reduced operating expenses.

”We did a lot during the quarter to improve our expense side, but we continue to see 'weakness' in the market, as (Moody's) called it, and that's what they're concerned about,” Chupaska said. “We made no bones about that during our conference call. … We just have to hope that things turn around some by the time they look at us again.”

On Friday, Moody's also downgraded its ratings for the Mashantucket Pequot Tribal Nation, which owns Foxwoods, cutting its corporate family and probability-of-default ratings from Ba3 to B1, two notches above its comparable ratings for the Mohegan authority. It also lowered its rating for the tribe's subordinated special revenue obligations from B1 to B2 and its 2007 Series A notes from B2 to B3. It confirmed its rating for the tribe's special revenue obligations at Ba2.

Although Foxwoods has reported slight year-over-year increases in its slot-machine winnings the last two months, “it remains exposed to weak gaming-demand trends as well as increased competition from video lottery terminal facilities in New York and Rhode Island,” Moody's said.

The tribe had no comment on the Moody's ratings.

Note: Although this article is being picked up today in the "Googled" article section on the right-hand side of the blog, those Tribal members who read the Feather News in the government building cannot access that "Googled" article section.