Saturday, November 28, 2009

Investment Company Buying Up Mashantucket Debt

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This installment of The Tribes In The Media is a Norwich Bulletin article on an investment company seeking to profit through purchasing Mashantucket Pequot debt. The Day newspaper previously reported on the debt purchases.

Foxwoods debt buy could aid outside firm
By William Sokolic
The Norwich Bulletin
November 27, 2009

Could Apollo Management, the parent of largest casino company in the nation, be gobbling up debt from the Mashantucket Pequot Tribal Nation at distressed prices?

The private equity owner of Harrah’s Entertainment Inc. isn’t saying. Neither is the tribe, which owns Foxwoods Resort Casino and MGM Grand at Foxwoods.

Still, according to folks who track the industry, there are potential upsides for Apollo, or any private company, to invest in the financially strapped tribal gaming authority, despite the limitations outside investors face when dealing with Indian gaming.

An outside company can manage gaming operations but cannot own any portion of the casino or hold any ownership stake. Nor can an outside firm foreclose on a tribal casino.

Marketing, branding

Yet, as MGM can attest, such investments can lend marketing and branding efforts to tribal casinos. MGM does not own the casino hotel at Foxwoods that bears its name, but struck a deal for use of its brand. Should Apollo buy up enough debt — even if purchased from a creditor rather than the tribe — it could present synergies with the Harrah’s brand, said Megan Neuburger, a director with Fitch Ratings Services. Apollo completed its transaction to buy Harrah’s early last year.

“They can in some way explore a marketing partnership,” Neuburger said.

There also is a potential to sell any purchased Foxwoods bonds at a profit, she said, especially if bought at distressed levels.

“Buy cheaply, and when gaming levels recover, sell at a profit,” Neuberger said.

Foxwoods, like most gaming companies in the country, has fallen on hard times. Slot revenue has declined year-over-year for much of 2009 as consumers cut back on discretionary spending.
The Mashantuckets have cut costs, as have gambling companies elsewhere.

Apollo, or any other company, would not buy debt at face value if there were concerns it would not be paid in full, said Craig Parmalee, managing director of Standard & Poor’s, which just lowered the tribe’s rating after the announcement last week that it might be unable to meet a complete interest payment due this month, and would likely miss the grace period, going into default.

“But an investor could buy debt at a substantial discount, like 10 or 20 cents on a dollar,” Parmalee said. “They could buy the debt from a creditor at a fraction of par, or face value.”
If the purchasing firm can make a deal for even twice that much later on, it stands to walk away with a profit, he said.

Moody’s Investor Services withdrew its ratings on the Mashantucket Pequot Tribal Nation last week because it lacks adequate information to maintain a rating, Moody senior vice president Keith Foley said.

In addition to the default, the tribal council said last month that as part of the ongoing debt restructuring process, it entered into a forbearance agreement, which extends through Jan. 20, with its senior lenders.

The tribe is working with Miller Buckfire, a New York financial firm, on its debt restructuring.

Apollo Management is a private equity investment firm founded in 1990 by former Drexel Burnham Lambert banker Leon Black. The firm specializes in purchasing distressed companies involved in corporate restructuring.

Apollo also owns AMC Entertainment and Norwegian Cruise Lines, in addition to Harrah’s Entertainment.