Gun Lake Gaming Authority’s Credit Rating Bumped Up


Upgrade Comes as Parties Prepare “Patchak Case” for Supreme Court

Just a year after the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians opened the Gun Lake Casino, the country’s top financial ratings services have boosted the Gun Lake Tribal Gaming Authority’s credit ratings. The upgrades were announced as parties in the controversial “Patchak case” prepare for oral arguments in front of the U.S. Supreme Court on April 24. Indian law experts say the case us crucially important to Indian country because it challenges the Interior Secretary’s authority to take land into trust and threatens the federal government’s sovereign immunity from lawsuits regarding Indian lands and the status of those trust lands.

The Match-E-Be-Nash-She-Wish Band, also known as the Gun Lake Tribe, opened its casino in February 2011. On February 29, 2012, Standard and Poors (S&P) announced it had raised the Gun Lake Gaming Authority’s credit rating from B to B+. “U.S. casino operator Gun Lake Tribal Gaming Authority (the Authority) continues to report strong operating results since we revised our rating outlook to positive from stable in August 2011,” S&P said in a press release. The company said it raised the Authority’s issue-level rating on its senior secured term loan to 'B+' from 'B.‘ “ The is $165 million the tribe received in permanent financing through the investment banking and securities firm Goldman Sachs in mid-2010 to complete the construction of the casino. The tribe had broken ground for the casino at its 147-acre reservation in September 2009, but construction slowed when the economy made it difficult to find permanent financing for the project.

The S&P announcement explained that the upgrade “reflects the Authority's strong operating performance and our expectation that credit measure will remain strong for the rating.” By the end of November 2011, the Gun Lake Tribe had contributed more than $10.3 million from its gaming profits to the state of Michigan and local governments in line with its tribal-state gaming compact.

Credit ratings provide an opinion by a financial rating service on the relative ability of an entity to meet financial commitments, that is, to pay back loans and interest, pay out insurance claims or dividends to stockholders or any other financial obligation that may arise – and avoid default. The ratings range in descending order from the categories “AAA” to “D” to describe how investment-worthy – or not – an entity is.

Three weeks after S&P upgraded the Gaming Authority’s ratings on March 21, Moody’s Investors Service announced it has placed Gun Lake Tribal Gaming Authority's B3 (BBB) Corporate Family Rating, Probability of Default Rating and first lien senior secured term loan rating on review for possible upgrade. “Moody's review for possible upgrade considers that in the 12 months that the Gun Lake Casino been open, it has performed well. The casino has so far generated revenue, earnings and margins well above Moody's initial expectations. Since opening in February 2011, Gun Lake has also repaid approximately $38 million of debt,” a measure that could support a one-notch upgrade of Gun Lake's Corporate Family Rating, Moody’s said in a press release.

The upgrades were welcomed by tribal officials. “Gun Lake Casino’s success is directly attributed to the people involved in our 10-year effort to open its doors,” said John Shagonaby, CEO of Gun Lake Tribal Gaming Authority. “That starts with support of tribal citizens and dedication of Tribal Council and staff members. We now have a great management team behind the day-to-day operations. The casino currently employs more than 800 people. The financial performance has exceeded our expectations and we look forward to continuing this economic growth to serve our guests and local community.”

Both S&P and Moody’s took the upcoming Patchak case into consideration, among other factors, in upgrading and reviewing the Gaming Authority’s financial standing. “[W]e continue to monitor the pending litigation challenging the authority of the U.S. Secretary of the Interior to acquire the casino land into trust for the Tribe. The plaintiff alleges that the Tribe did not qualify to have land taken into trust under the Indian Reorganization Act. The rating does not incorporate any implications from an adverse outcome to the trial, which we view as unlikely, over the intermediate term,” S&P said.

Last December the high court accepted petitions from the Gun Lake Tribe and the federal government to review a ruling from the Washington, D.C. Circuit Court of Appeals that said David Patchak, a Michigan man, has standing to sue the Interior Department for taking into trust land where the tribe has built a casino. A district court had dismissed Patchak’s complaint saying that he lacked standing – the right to file a lawsuit – because the injury he alleged was not within the zone of interests protected by the Indian Reorganization Act. The district court also had ruled that Patchak was barred from filing the complaint by the Quiet Title Act, which says the federal government cannot be divested of title to Indian trust lands. The appeals court reversed and remanded the case back to the district court. In its ruling, the appeals court expanded the previous criteria for standing by granting Patchak prudential standing. Its decision was a departure from rulings in similar cases by four other circuit courts.

Moody’s said its decision to place Gun Lake's ratings on review for possible upgrade “considers that if the Supreme Court reverses the ruling made by the D.C. Circuit Court of Appeals to reinstate the standing of the individual who brought the lawsuit that questions whether the federal government improperly took land into trust for the Gun Lake Tribe to build a casino, it is Moody's understanding that Gun Lake's right to operate Class III gaming can no longer be contested.”

Matthew Fletcher, Professor of Law & Director of the Indigenous Law & Policy Center at Michigan State University College of Law, toldLegal Newsthat the case is impossible to predict. “Statistically speaking, the court reverses more than two thirds of the cases it reviews. It typically grants cert with an eye toward reversal. Moreover, the federal government, as the ultimate repeat player before the Supreme Court, rarely loses. So those statistics weigh in favor of the government and the tribe,” Fletcher said. “Indian law is different, though, and if the court sees this as a case involving nothing more than tribal interests, the statistics swing back dramatically the other way. Tribal interests prevail, even with the support of the federal government, in only a small percentage of cases, at least since the mid 1980s. I can't predict. It's a complete toss up.”

If the Supreme Court upholds the appeals court decision, the case will be remanded to the district court for trial, which means the case could conceivably recycle back to the Supreme Court. A decision in the Patchak case is expected by the end of the Supreme Court's session in June.