Monday, October 12, 2009

"If The Casino Goes Belly Up, Creditors Can't Take The Land," Says Chupaska

Feather News

Wow. The Mohegan Tribal Gaming Authority announced in Sunday's edition of the Norwich Bulletin that it is "considering" the restructuring of its debt. Mohegan Sun chief financial officer Leo Chupaska says, "If the casino goes belly up, creditors can't take the land." The article, while reporting the Mashantucket's debt, does not mention that MTGA's debt is $1.6 billion. The Feather News reported last year that MTGA would soon need to restructure its existing debt.

Mashantuckets, Mohegans lack flexibility when dealing with debts
Indian Gaming Act restricts solutions
By William Sokolic
The Norwich Bulletin
October 11, 2009

In May 1978, Resorts opened in Atlantic City, N.J., as the first casino outside Nevada.
A decade later, Merv Griffin bought the property. Almost a decade after that, Griffin sold the company to Sun International, which sold it to Colony Capital in 2001 for a huge loss.

Each new owner assumed the debt of the previous ownership.

This year, the creditors are seeking to take over ownership from Colony Capital for failure to pay its debt service.

At the center of all these changes was debt — an issue very much on the minds of the Mashantucket Pequot Tribe, owners of Foxwoods and MGM Grand at Foxwoods, and the Mohegan Gaming Tribal Authority, which owns Mohegan Sun.

Millions, billions owed

The Mashantuckets reportedly have debt obligations of more than $2 billion. The Mohegans have to repay $150 million in $30 million increments, beginning next year, the result of an agreement with the bank to retire a $330 million note.

Neither tribe can seek any of the options available to previous owners of Resorts. They cannot look for a buyer to take the load off their shoulders. Or sell off a gaming hall to reduce debt. The Indian Gaming Regulatory Act says only a tribe can own a casino, said Shawn P. Pensoneau, a spokesman for the National Indian Gaming Commission. If property is on the reservation, the land is owned and held in trust by the federal government.

The Mashantuckets have retained Miller Buckfire & Co. LLC as a financial and restructuring adviser and Weil, Gotshal & Manges LLP as legal counsel to provide professional services in connection to restructuring its large debt.

Mohegan Sun faces similar approaches.

“We’ll have difficulty making those payments on the $150 million, so we are considering debt restructuring,” said Leo Chupaska, Mohegan Sun’s chief financial officer. “We are studying what we can do to take care of the issue.”

More options

Nontribal gaming companies have more options. They can issue additional debt or stock, he said.

“The tribes can’t sell off or convert anything to equity,” said Clyde W. Barrow, director of the Center for Policy Analysis at the University of Massachusetts Dartmouth.

Said Chupaska, “If the casino goes belly up, creditors can’t take the land.”

And while tribes can lease land for retail and restaurant operations — and can hire a company to manage the casino — it cannot sell its casino assets to a nontribal entity.

There are a lot of private operators on Indian reservations, Chupaska said. Mohegan Sun has a number of third-party retailers who pay a leasing fee. Most pay a percentage of revenue, he said.

“The regulatory act is specific for Indian gaming, not for retail,” Pensoneau said.

So what’s a financially strapped tribe to do?

If a tribe went into default, creditors could hire someone to run the casino, but the management team would have to be licensed by the National Indian Gaming Commission, Chupaska said.

“It’s difficult to pass muster with the NIGC,” he said. “The only thing we can do to raise money is to go into debt markets or issue bonds, so we’re at a little disadvantage.”

Like foreign nation

Barrow likens it to trying to collect on a debt from a foreign government.

“You can cut them off,” he said. “But if they do not have money, you can’t get blood from a stone.”

They may declare bankruptcy.

“But don’t expect an Obama bailout,” he said.

If banks are so inclined, they can write off the debt as they do for mortgages, restructure to lower interest rates, or lengthen the time to pay to back, Barrow said. Those steps are in the bank’s self-interest, since they cannot take over a casino.

Meantime, it’s business as usual, Chupaska said.

“We do not anticipate that the financial restructuring being considered by the tribe will affect our employees, customers, vendors or business partners,” he said. “The tribe does not plan to make any additional comments regarding this matter at this time.”