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Mashantucket chairman ousted amidst $2.3b debt restructuring

MASHANTUCKET, Conn. – The Mashantucket Pequot Tribal Council has forced its chairman into an administrative leave in the midst of an unprecedented financial crisis at Foxwoods Resort Casino.

Chairman Michael Thomas was relieved of his duties Aug. 31, just days after an announcement that the Mashantucket Pequot Tribal Nation, owner of the country’s largest casino, is restructuring a $2.3 billion debt and is at risk of defaulting on a $700 million loan.

In a statement, the tribal council said, “The Mashantucket Pequot Tribal Council has placed Michael Thomas, the chair of the tribal council, on administrative leave pending the outcome of an internal review. As a matter of policy, the council does not discuss personnel matters and does not intend to comment further.”

Six of the seven council members sent Thomas an e-mail saying that he “betrayed” their trust in a letter he sent to tribal members, describing his plan to deal with the tribe’s financial crisis and giving his opinion of the situation, according to an unnamed senior tribal adviser, The Day reported. Thomas is the seventh member of the council.

“Earnings are down considerably and there are no signs of immediate improvement. These are dire financial times for our tribe,” Thomas wrote to members Aug. 19.

“Incentive” payments to tribal members have been halved over the past year and now range from $90,000 to $120,000 a year, but Thomas said there would be no further reductions in incentive payments.

“Instead, tribal government and the incentive will now be paid FIRST with any cuts or changes to our operation taking place after our members are paid. I will not waver from my pledge to protect the tribal government and the incentive,” he wrote.

“Regardless of what may happen I have made it clear that we will not accept Wall Street mandates for cuts to tribal government or the incentive. Anyone who puts the interests of consultants, bankers and bond holders ahead of our tribal community will have to answer to me.”

The six councilors said they were “appalled” by Thomas’s letter and his attempts to deal with the financial crisis unilaterally.

They gave him a Sept. 10 deadline to resign; otherwise the council could vote him out of office with a three-fifths vote and hold a special election within 30 days to fill the vacancy, according to the tribe’s constitution and bylaws.

The senior adviser said Thomas will try to maintain his chairmanship by a referendum vote from tribal members. He said the attempt to oust Thomas was “wholly without merit” and the “epitome of irresponsibility,” and that Thomas would seek a referendum vote of tribal members on his expulsion and a special meeting to recall the other six councilors.

The tribe’s financial woes sent a shockwave through Indian country.

Hit by the recession and competition from nearby casinos, Foxwoods’ revenues have dropped consistently over the past year. In July, Foxwoods announced slot revenues of $63.2 million – a 13.5 percent drop compared to the same period last year. The state’s 25 percent cut in July was $15.9 million.

In an effort to staunch the flow, the nation laid off 800 employees last year and cut government jobs.

The $2.3 billion debt is $1 billion more than the tribe’s Foxwoods Resort Casino can sustain, the senior advisor said.

Most immediately, the tribe is at risk of defaulting on a $700 million line of credit in October.

Standard & Poor’s has cut Mashantucket’s rating four steps to CCC and placed the debt on credit watch, citing the restructuring reports. Ratings of BBB or above are generally considered by regulators and market participants to be “investment grade,” while those that receive a lower rating are generally considered “speculative grade,” according to S&P’s Web site. A credit watch status means it will be difficult for the tribe to borrow.

In a statement issued after news of the restructuring broke Aug. 26, the nation said it has hired Miller Buckfire & Co., LLC and Weil, Gotshal & Manges LLP, as financial and restructuring adviser and legal counsel, respectively, to guide it through the process.

“We have sufficient resources to continue to operate our businesses as normal and it will be business as usual. We do not anticipate that the financial restructuring being considered by the tribe will affect our employees, customers, vendors or business partners. The tribe does not plan to make any additional comments regarding this matter at this time,” the statement said.

Foxwoods opened in 1992 to huge success. Kien Huat, the Malaysian investment company that bankrolled the casino, is owed $21.2 million of the original $160 million loan.

Last year, the nation opened the $700 million MGM Grand at Foxwoods, a 30-story, two million-square-foot facility with a new casino, a 4,000-seat performing arts theater, restaurants, signature stores, and an enormous convention space with a ballroom/dining hall that can seat 5,000 guests.

Under Thomas’ chairmanship, the tribe built a $67 million highway expansion on the state road leading to Foxwoods.

The Mashantucket Pequots’ financial crisis has raised a number of unanswered questions concerning tribal casinos in Indian country. What happens if a tribal nation defaults? Are tribal nations subject to the federal government’s bankruptcy laws? Can a nation continue to pay itself and its members while not paying its debtors?

Creditors probably can’t take over assets or operations of casinos on sovereign tribal land as they may with commercial bankruptcies, Megan Neuburger, an analyst at Fitch Ratings in New York, told www.bloomberg.com Aug. 26. That leaves them little choice other than to restructure debts and work with the tribe, she said.