Tuesday, July 13, 2010

The Real July Fireworks For Connecticut Indians

By Ken Davison
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Updated

The Mashantucket Pequot Tribe faces a deadline today that calls for the Tribe to pay about $700 million to its bankers while the Mohegan Tribe officially opens its table games today at its Pennsylvania casino.

Meanwhile, members of the Massachusetts legislature are still in meetings to negotiate the final details of how to legalize casino gambling in that state which is expected to significantly siphon off revenues that would otherwise go to the two Connecticut Indian casinos.

The banking syndicate led by Bank of America will likely give the Mashantuckets another extension on solving the $700 million credit line problem and not agree to forgiving debt yet because more is at stake for the banks in these negotiations than just the $700 million credit line at Mashantucket. The Mohegan Tribal Gaming Authority faces a 2012 deadline for the repayment of a $800 million credit line - about half of its total debt - to a banking syndicate led by the same Bank of America so what takes place at Mashantucket will set a precedent for what could happen with their money lent to the Mohegan's gaming arm.

What is clear is that neither Indian casino can come up with that kind of cash on their own without taking on new debt.

While the Mashantucket's financial statements are not public, the Mohegan Tribal Gaming Authority already is paying about $125 million each year in interest expense on their debt, leaving little for lump sum principle payments to reduce their debt.

The Mashantucket Pequots seem to be intent on eliminating payments, which at one time were in the six figures, made to its tribal members while the Mohegan Tribe's payments of (under tribal law it is believed to be a violation for a tribal member to state these payments but tribal officials seem to be permitted) could also be in jeopardy at some point.

In a conference call with analysts earlier this year, the Mohegan Tribal Gaming Authority said it hopes to have a plan in place by this September. The gaming authority's next conference call with financial analysts is scheduled for June 29 when it is expected to release its operating results for the quarter of April through June.

The bankers are keenly aware of two scenarios that would threaten the repayment of their loans over time: the emergence of casinos in Massachusetts and increased interest rates on future casino borrowings which would require significant more cash outlays by the Tribes just for interest payments alone. So for the banks it is a race against time as the repayment picture is not likely to improve in the future.

Today's opening of table games in Pennsylvania should lessen the Mohegan Tribe's casino's losses in that state but the net result is not yet clear. The Mohegans have also spent about $50 million on casino partnerships with a tribe in Washington and a tribe in Wisconsin but neither have yet panned out.

Pennsylvania has been a mixed blessing for the Mashantuckets. A group that the Mashantuckets are involved with was awarded a license to open a slot parlor in the coveted city of Philadelphia but have not yet been able to capitalize on that venture. The Mashantuckets are in need of money to build the slot parlor - which would be a casino since the state legalized table games since the award of the slot license - and could see their license stripped if they cannot show an ability to build a casino soon.

Prospects for the Mashantuckets in Philadelphia may be looking up since it was reported on Sunday that Harrah's Entertainment may step in to finance the project.
The Philadelphia Inquirer reported that Harrah's is owed $67.3 million for the land where the Foxwoods Philadelphia casino is to be located which gives Harrah's an added incentive to close a deal with the Foxwoods group.

Since Harrah's already runs one of the casinos in Pennsylvania, the high-grossing casino in Chester which the company opted for instead of one in Philadelphia where they owned land, the company cannot exceed a 33 ownership percent stake in the Foxwoods project according to state law.

Last month the Foxwoods group, fighting an action by the Pennsylvania Gaming Control Board to revoke their casino license, said they were talking to five potential investors. Talks between the Foxwoods Philadelphia group and casino magnate Steve Wynn broke down earlier this year forcing the group to look elswhere for a white knight.

Other scenarios could emerge that would be bad news for the two Indian casinos in Connecticut. Although the governor of Rhode Island vetoed a table games bill last month for the state's two slot parlors it is likely that another attempt will be made in the near future. The Shinnecock Tribe of Long Island, N.Y., which received federal recognition last month, is looking to open a casino in New York and plans for a long-awaited slot parlor at New York City's Aqueduct Racetrack could be finalized in the next few weeks.

While competition to Connecticut's Indian casinos in neighboring states has long been expected to ramp up, the economic situation and the diversification efforts of the two tribes have served as an unexpected drag on their casino's earnings. These issues have only been magnified by the assumption of significant debt for casino expansions that have either had dissapointing results or been halted altogether.

Note: An article in today's The Day newspaper entitled "End of payments likely to hearten tribe's lenders" by Brian Hallenbeck says, "While certain to fan discontent among tribal members, the Mashantucket Pequot Tribal Council's elimination of members' per capita payments is likely to sit well with the tribe's lenders, according to financial sources. The council has informed members that their monthly distributions - said to range, on average, between $7,500 and $10,000 as recently as a year ago - will cease Dec. 31."