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Mashantucket’s bond ratings downgraded

NEW YORK – Standard & Poor’s rating services has lowered its ratings to the default category on three special revenue bonds issued by the Mashantucket Pequot Tribal Nation.

In a March 4 report, the financial bond rating company said the tribe’s inability to make full interest payments on more than $620 million in bonds triggered a downgrading in its special revenue bonds ratings to “D.” S&P’s letter definitions says a “D” rating indicates “payment default on financial commitments.” Triple A, the highest rating, indicates an “extremely strong capacity to meet financial commitments.”

The Mashantucket Pequot Tribal Nation owns Foxwoods Resort Casino and MGM Grand at Foxwoods in southeastern Connecticut.

S&P said it lowered its “issue level rating” on $250 million with 5.91 percent interest on special revenue bonds that will mature in 2021 and on $300 million with 6.91 percent interest on special revenue bonds maturing in 2012. In addition, it lowered the “Standard & Poor’s Underlying Rating” (SPURs) on $70.4 million with 6.5 percent subordinated special revenue bonds that mature in 2031.

“The rating action stems from our belief that the tribe did not make the full interest payments due March 1, 2010 on its special revenue and subordinated special revenue bonds,” the report said.

It did not indicate the dollar amounts of interest due.

The lowered credit rating comes as the nation continues to seek restructuring of $2.3 billion in debt under a forbearance agreement with its senior lenders.

Foxwoods, the largest casino in the country, has been successful, but last August, the nation announced it was seeking to restructure the $2.3 billion debt after two years of plummeting slot revenues, expensive expansions, and a nose-diving economy left the tribe in an unprecedented financial hole.

The nation’s ratings were lowered from “B+” to “CCC” and it was placed on “CreditWatch” at the time.

“The CreditWatch listing reflects that we could lower the rating further if the tribe moves forward with a debt restructuring plan that results in creditors receiving less than par on existing debt,” S&P said at the time.

In November 2009, the tribe announced it had paid only $14 million of a $21.25 million on $500 million 8.5 percent notes due 2015, triggering an S&P downgrade to “D” after the partial payment. The nation said it expected to default on the balance, which it did the following month.

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Mashantucket and its senior lenders entered into a forbearance agreement, which was scheduled to expire Jan. 20, but was extended through April 30, 2010.

In a forbearance agreement, the lender typically agrees to postpone, reduce, or suspend payment due on a loan for a limited and specific time period. Interest that accrues during the forbearance typically remains the debtor’s responsibility. When the forbearance expires the unpaid interest typically is added (capitalized) to the principal balance of the loan.

The situation at Mashantucket is being closely watched throughout Indian country because the nation is treading through uncharted financial waters.

Usually a lender can foreclose on a property or force the sale of the property owner’s assets, but that’s not an option in Indian country because of tribal sovereignty. Also, it is generally assumed that tribes, as sovereign nations, cannot protect themselves by filing bankruptcy, although that assumption has never been put to the test in a U.S. court.

The most likely outcome is that the tribe and its lenders will work through to a solution, because they have to.

“I think that probably is the likely outcome, but I don’t really want to speculate,” said Melissa Long, S&P’s primary credit analyst.”I think right now what we believe will happen is the tribe and their lenders will sit down and there’ll be some sort of negotiation that happens between them.”

While the tribe and its lenders continue to work out the debt problem, slot revenues fell again in January, the latest figures available, at both Foxwoods Resort Casino and Mohegan Sun, the second largest casino in the country.

Foxwoods reported total slot revenues of $51.6 million, down 2.5 percent from a year earlier. Slot players bet 3 percent less than they did in the same month a year ago.

Mohegan Sun reported a 1 percent decline in slot revenues, to $61.7 million. Slot players bet 7 percent more on its slot machines than in the same month last year.

The two casinos paid the state $28.5 million under a slot-revenue sharing agreement that gives the state 25 percent of gross slot revenues.

The tribal nation did not comment on the lowered credit ranking, but in announcing the extended forbearance agreement in January, Director of Public Affairs Joele Frank of Wilkinson Brimmer Katcher, a New York-based public relations firm, emphasized that the tribe’s debt restructuring efforts are separate and distinct from operations at Foxwoods and MGM Grand and will not have any impact on guests, employees, suppliers or business partners at the two casinos.

“Foxwoods remains committed to providing its guests with its signature guest service, unparalleled gaming options, the very best in entertainment, and world-class services, dining and amenities,” Frank said.