Wednesday, July 22, 2009

Tribal Gaming Authority Refinances $330 Million Of Debt

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The Mohegan Tribal Gaming Authority (MTGA) reported to the U.S. Securities and Exchange Commission (SEC) last week that it borrowed $340 million in order to repay a $330 million debt that came due last week.

The $330 million debt represents about one fifth of MTGA's total long term debt of $1.6 billion.

This piece of the debt that was just refinanced has been hanging around for about a decade in one form or another. MTGA first borrowed $300 million in 1999 as part of the $1.2 billion Sunburst expansion and was later refinanced when the Tribe’s business arm, Mohegan Tribal Gaming Authority (MTGA) borrowed $330 million about five years ago.

Not only was no money set aside for the last five years to repay the $330 debt, but it grew another $10 million to $340 million.

MTGA reported the following to the SEC last week, "On July 15, 2009, the Mohegan Tribal Gaming Authority (the “Authority”) drew $340.0 million under its $850.0 million revolving bank credit facility, which was established pursuant to a Third Amended and Restated Loan Agreement, dated as of December 10, 2008, by and among the Authority, the Mohegan Tribe of Indians of Connecticut, the lenders named therein and Bank of America, N.A., as Administrative Agent. The proceeds of this borrowing were used to repay the Authority’s 6 3 /8% $330.0 million Senior Subordinated Notes at maturity on July 15, 2009, plus accrued interest."

Upon reaching last week's due date for the $330 million borrowing, MTGA will have paid over $200 million in just interest expense on that one piece of debt since it was first taken out in 1999.

Despite early announcements after the 2001 Sunburst expansion by MTGA that it would pay down the $1.2 billion Sunburst expansion debt aggressively, only about 18% of that debt has been paid off since the expansion first opened in 2001. The MTGA’s profits, as adjusted, suffered badly in the first three years after the expansion first opened, averaging $57 million in total profits for each of those three years (fiscal years 2002, 20003 and 2004) compared to the $140 million average profit for each of the last two pre-expansion years (fiscal year 2000 and fiscal year 2001). Since 2004, profits generated by the Mohegan Sun have increased and are roughly equivalent to the profit levels of the pre-expansion years if one does not take into account the losses resulting from the diversification program.

Note: This article focuses on one component of the debt and is not designed to give the reader a complete picture of the Tribe’s financial situation. It is our hope that through more articles covering the Tribe’s finances, the reader will gain a clearer understanding of the financial situation. MTGA's debt does not include tribal government debt or any of the approximately $1 billion the Tribe will pay to the former casino management partners, Trading Cove Associates, over a fifteen-year period. All profit figures have been adjusted to reflect actual payments to Trading Cove and do not take into account the amounts reimburseable by Penn National to the Tribe in fiscal year 2006.