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Mashantucket Pequots Near Debt Restructuring Deal

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The Mashantucket Pequot Tribal Nation plans to finalize a deal with creditors by the end of 2011 to restructure more than $2 billion in financing related to its Foxwoods Resort Casino and cut the tribe's debt load by half a billion dollars, reported The Wall Street Journal.

The Ledyard, Connecticut-based gaming facility is the largest in North America, and the tribe's debt restructuring is the highest among Indian gaming tribes. Like many tribes, the Mashantucket Pequots expanded its casino during the credit bubble. In April 2008, the tribe announced plans for a new $700 million resort, the MGM Grand at Foxwoods, reported the Financial Times. But days later, Lehman Brothers filed for bankruptcy protection, and like dominoes, financial institutions crumbled, and the global economy sank, the FT reported. Struggling to pay back its highly leveraged debt, the Mashantucket Pequots reached an agreement with senior lenders in January 2010 to extend and restructure its debt forbearance (in which creditors agree not to press demands for payments).

“It’s the same old story,” Joseph Kalt, co-director of the Harvard Project on American Indian Economic Development, told the FT. “A lot of cash flowing, tribes investing like mad and then getting hit by the recession.”

Now the Mashantucket Pequot Tribe hopes that debt can be renegotiated. Under new agreement terms, the tribe's $1.5 billion now owed would be restructured in obligations at favorable 6 percent and 8 percent interest rates with a lengthy payment time line. The tribe would make payments over extended periods; some bondholders would not receive their dues for up to 18 years, the Journal reported.

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The Nation has been dealing with banks and bondholders, including Bank of America Corp., this summer in the hopes of sealing the deal, the Journal stated. To swim up their debt waterfall, the Mashantuckets' restructuring will need major lenders to extend a total of $650 million in loans previously used as a credit line. Meanwhile, senior bondholders would continue a $550 million investment over 13 years, costing some bondholders 65 percent of their investment under the deal. Other bondholders would take a 28 percent reduction in their original investment, the Journal reported. These tiers of bondholders would receive a security that could potentially lead to additional payments should Foxwoods' business pick up. The Malaysian company KienHuat, which provided the Mashantucket Pequots with their initial loan to build Foxwoods, would receive $21 million in the deal. But the Mashantuckets seek to stop its $8 million yearly payouts to KienHuat, reported the Journal.

The casino's business is also reportedly improving since the November appointment of chief executive Scott Butera, widely anointed as a "turn-around artist" for his role in leading Las Vegas-based Tropicana Entertainment, which owns nine casinos in five states, on a restructuring of its finances and operations. Butera helped rescue the company from Chapter 11 bankruptcy in March 2010, reported The Day.

Still, Standard & Poor rated the Mashantuckets' bonds the lowest "D" rating.

Connecticut's only other federally recognized Indian tribe, the Mohegan Tribe, which operates the Mohegan Sun, expects to close on a deal to refinance some of its $1.6 billion in debt in the next few months.