Gun Lake Refinances $165 Million in the 'Post-Patchak' Era

Good financial news for all of Indian country

In a significant development for Indian country financing, the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians has announced it has refinanced $165 million in outstanding debt—and saved a fortune by doing so.

The tribe’s refinancing of an original loan of $165 million that was incurred to develop and build Gun Lake Casino was completed three years in advance of the scheduled July 20, 2015 maturity date. The Match-E-Be-Nash-She-Wish Band, also known as the Gun Lake Tribe, had secured the $165 million in financing through the investment banking and securities firm Goldman Sachs in July 2010, in order to continue constructing the casino on the tribe’s 147-acre reservation in Wayland County, Michigan. Construction had started in months earlier, but slowed down when the economy made it hard to find permanent financing for the project.

Tribal leaders were happy to announce the refinancing deal. “We are very pleased to have secured favorable terms to refinance our existing debt,” Gun Lake Chairman D.K. Sprague said. “This shows a lot of confidence in our operations and optimism for a bright future, not only for our citizens, but the local economy.”

The casino opened in February 2010 and in the year-and-a-half since then the tribe has contributed more than $8 million in revenue-sharing to the state and local governments. The tribe employs more than 800 people at the casino. “As a result of the financial markets improving, and the Gun Lake Casino exceeding expectations, the Tribe was able to significantly reduce its cost of borrowing.”

The tribe saved tens of millions of dollars by refinancing three years in advance of the loan’s maturity date, spokesman James Nye told Indian Country Today Media Network.

The refinancing was arranged by KeyBank’s Native American Financial Services, said John Shagonaby, CEO of the Gun Lake Tribal Gaming Authority. “The Authority is grateful to KeyBank for being an outstanding financial partner. This relationship has allowed the Tribe to lower its interest costs and have the flexibility to consider expanding the Gun Lake Casino. At this time, we do not have definitive plans to expand, but with this refinancing, it is now possible,” he said.

The refinancing arrangement was announced just a month after the U.S. Supreme Court issued an astounding ruling that that David Patchak, a non-Indian individual who lives near the Gun Lake Casino, has standing to sue the Interior Department for taking Gun Lake’s land into trust. Patchak had filed a lawsuit in federal court claiming Interior did not have the authority to take the land into trust because the tribe was not “under federal jurisdiction” in 1934 when the Indian Reorganization Act was passed. He based his lawsuit on Carcieri v. Salazar, a controversial 2009 Supreme Court ruling that said Interior had wrongly taken into trust 31 acres of land the Narragansett Indian Tribe of Rhode Island intended for elder housing, because in 1934 the tribe was not “under federal jurisdiction” —without defining that term. The federal court dismissed Patchak’s case, saying he did not have standing to sue the federal government, but an appeals court said he did. Gun Lake and the federal government petitioned the high court to review the appeals court decision and the Supremes ruled 8-1 in June to uphold the appeals ruling. They sent the case back to federal court for a trial on the merits of Patchak’s Carcieri argument.

The decision sent shock waves throughout Indian county because it means that until the Carcieri case is resolved in favor of the Interior Department’s authority to take land into trust, or Congress passes a Carcieri fix affirming Interior’s authority, the status of Indian trust lands is no longer secure and opens the floodgates to legal challenges to Interior’s trust acquisitions for six years after the department acquires trust land for an Indian tribe.

Gun Lake’s refinancing deal is, therefore, a significant development in what may be called the “post-Patchak” era since the tribe that is directly involved in the litigation has been able to successfully refinance its debt. Bill Lomax, the president of the Native American Finance Officers Association, said in an email response to a request for comment that he sees the Gun Lake refinancing as a sign that financial markets do not view the Patchak decision as a direct threat to the Gun Lake casino operations. “The fact of the refinancing is a clear indication from the market that they are not concerned about the case. I also believe there is little reason for Gun Lake to be concerned,” Lomax said. “In the highly unlikely case that Mr. Patchak is successful, I am extremely confident Gun Lake would find a political solution.”

The Gun Lake Tribe is creating jobs in an area of the country that desperately needs them, Lomax pointed out. “I don't think any politicians in their right mind would allow the casino to be shut down under those circumstances.”

Looking to the financial market in general, Lomax said that tribes do have financing options available for casinos. “Those with very good demographic and risk profiles are finding highly favorable terms. Others are having a much harder time,” he said.

In a June 19 media release, Fitch Ratings said Supreme Court’s Patchak decision has mixed credit implications for the gaming sector:

  • It is likely to result in increased challenges from anti-gaming interests regarding land-into-trust decisions for tribes, as it lengthens the statute of limitations on judicial review to six years from 30 days;
  • Raising capital for Native American casino projects could become more difficult/expensive, as investors are likely to have heightened concern about potential challenges regarding land-into-trust decisions;
  • Casino operators that face the possibility of increased competition from potential casino projects tied to land-into-trust decisions could benefit from a longer regulatory process.

The ratings company noted that the “court offered no conclusions regarding the merits of Patchak's case; it simply allows the case to proceed in the lower courts. . . . Of course it remains to be seen if Patchak prevails in court.”