Saturday, May 2, 2009

The Tribe In The Media: Mohegan's Credit Rating Downgraded

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This installment of The Tribe In The Media is an article from the Wall Street Journal on the credit downgrade of the Mohegan Tribal Gaming Authority and the Mashantucket Tribe. The credit downgrade came one day after MTGA issued its earnings report for the period of January 1 through March 31. One innacuracy in the article states, "... Waterford Gaming LLC, which manages Mohegan Sun in a 50/50 joint venture with Sun International Hotels Ltd." These entities formed Trading Cove Associates, which formerly managed the Mohegan Sun but currently receives five percent of revenues generated at Mohegan Sun (except for revenues derived from the Casino of the Wind) until 2014. MTGA paid Trading Cove Associates $76.1 million in fiscal year 2008, down from $77.5 million in fiscal year 2007.

Moody's Lowers Ratings On Owners Of 2 Conn Casinos
By Kathy Shwiff
WSJ Dow Jones Newswires
May 1, 2009

Moody's Investors Service cut its credit ratings on the owners of two Connecticut casinos, saying weak gambling trends in that area will make it difficult for the tribes to reduce their debt in the near to medium term.

Ratings were cut further into junk territory on the Mashantucket (Western) Pequot Tribal Nation, which runs Foxwoods Resort Casino, and Mohegan Tribal Gaming Authority, which runs Mohegan Sun. Moody's also cut its ratings further into junk on Waterford Gaming LLC, which manages Mohegan Sun in a 50/50 joint venture with Sun International Hotels Ltd.

"We believe the Connecticut market will eventually stabilize, however the timing and degree of any stabilization is difficult to predict at this time," said Moody's Senior Vice President Keith Foley.

Consumers have cut back on gambling throughout the country amid the recession, though casinos in tourist towns, such as Las Vegas and Atlantic City, seemed to have suffered the biggest downturns.

Moody's downgraded its corporate family and probability of default ratings on all three companies by one notch, putting Mashantucket at B1 and Mohegan at B3. Waterford's corporate family and probability of default ratings were lowered one notch to Caa2 and Caa1, respectively. All have negative outlooks. Waterford's income is tied to the Mohegan Sun casino's revenue, and its recovery prospects are uncertain should Mohegan seek bankruptcy protection, liquidate or reorganize, Moody's said.

The firm pointed out the Mashantucket's ratings could be cut again if Connecticut gambling trends remain weak or worsen.

The same trends are hurting Mohegan, which also suffers from a large interest burden, a significant dividend obligation to the Mohegan Tribe, and increased competition, Moody's said.

"The decline in MTGA's comparable monthly Connecticut gaming revenues has accelerated so far this year and remains vulnerable to competition from gaming and hotel capacity added by Foxwoods Resort Casino, its primary competitor, as well as from neighboring jurisdictions," Foley said.

He added the tribe's Pennsylvania casino is not contributing enough to offset the cash flow decline at the Mohegan Sun in Connecticut.

Moody's predicted the Mohegan may have to seek covenant relief this year and it could face increases in its term loan amortization if $150 million in loans are not repaid by June 2010.