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Pikuni Industries keeps expanding


CODY, Wyo. - For the Quinault Nation of Washington state, the extras in its new casino and resort project will include a child learning center where youngsters will study tribal traditions.

For the Grand Ronde Tribe in Oregon, the savings on a new administrative center will allow them to build a display room for tribal treasures.

These tribes are able to afford the additions to their building plans because they scouted the ways of Wall Street and learned to raise money far more cheaply than they thought possible. They are tapping a borrowing source that could allow tribes to build schools, health clinics and utilities on their own, just as cities and states have always done.

The Quinault and Grand Ronde are among the first Indian nations to enter the municipal bond market. For those governments which qualify, the "muni" bonds are by far the most low-cost way to borrow. American states, cities and special districts issue these bonds routinely over the years.

These bonds pay the lowest interest rates around, thus providing the borrower with the greatest use of their funds. One reason is that governments are considered good credits, they are going to be around to make repayment.

Another big point is that municipal bonds generally are tax-exempt. People who buy them don't have to pay federal income taxes on the interest for the same reason tribes don't pay taxes to the states - state and local government bond issuers claim sovereign protection against federal interference.

High-income people are willing to demand less interest when they lend to governments because the tax-free money is worth much more to them. It's a good deal all around and lets states and cities build schools, roads and other "infrastructure" without selling their souls to the banks. But, until now, Indian tribes have been left out.

"It was a big savings," said Virginia Brings Yellow, Quinault treasurer, about its bond deal. For years her tribe borrowed from the local bank against proceeds of timber sales.

But the nation had plans for a $35 million casino and beachfront resort. After looking at terms on a bank loan, the Quinault decided to try the new idea of issuing bonds, she said. Luckily the right conditions were in place and the deal went through.

The tribe had to pay an interest rate of 7.85 percent on a taxable portion of the issue dedicated to the casino and resort. But another part, nearly half, was planned to build a convention hall and the child learning center. Since these are recognized as government business, they sold at a tax-exempt rate of 5.85 percent. Both rates handily beat the bank's charge of 11 percent, Brings Yellow said.

The annual interest payments are $800,000 less than the bank was asking, she said. "It saved us $3 million overall."

But the idea is so new, both for tribes and for Wall Street, that it can't be widely used until a number of barriers come down.

To understand the barriers, Brings Yellow and other tribal leaders recently attended a meeting with Wall Street professionals and bond lawyers at the Double Diamond X Ranch in Cody. Participants called it "historic."

The session was sponsored by American Capital Access Financial Guaranty Corp., a Wall Street firm that insures bond issuers. Its founder and chief officer, H. Russell Fraser, owns the ranch and commutes weekly from New York City.

After 37 years in the municipal bond market, running some of its most important companies, he says he now wears cowboy boots and jeans to work. With his feet in the West, he takes an intense personal interest in opening the tax-exempt markets to American Indians.

Fraser said he sees tribal nations as "the last emerging market in America" whose economic power is bound to grow. "It's time to learn to understand them now," he said, "rather than catch up ten years from now when they start coming to the tax-exempt market in large numbers." With this experience, he plans for his company to grow along with the tribes.

"There are plenty of rivers to swim and bridges to build," he said, but "it's fun to help the tribes.

Fraser hired a veteran of the bond market, Jennifer Lerch, to work full time on Indian deals. She helped bring out the Quinault issue and since then has visited 22 reservations to spread the news.

But she told the sessions in Cody that a lot of barriers have to be overcome for a tribe to get access. Federal law didn't allow tribes to even issue tax-exempt municipals until 1982, and then it put tighter limits on them than on states and cities.

Another barrier is tribal conflict. The wealthy people who buy these bonds won't get involved with tribes wracked by in-fighting or feuding with state governments, she warned. In fact, Lerch lists only eight or nine states which have tribal relations on a stable footing.

Even the stable tribes have to get their financial houses in order. Lerch said their financial books had to abide by the same standards that apply to cities and states. Tribes have to have steady income to retire the bonds. And, they have to have a good reputation, measured on Wall Street by their investment rating.

This is where a bond insurance company like ACA comes in, she said. Only one tribe, the Mashantucket Pequots, has a good enough rating on its own to issue bonds, and it only makes private deals. Other tribes need backup from a co-signer.

Companies called rating agencies exist just to give out grades to bonds, telling investors which are good and which are not. Their grades generally range from D, meaning don't buy unless you like to shoot craps, to AAA, meaning safe as it gets. People who are saving for their grandchildren stick to "investment-grade bonds," rated from BBB to AAA.

ACA specializes in squeezing bonds into the lower end of the "investment grade" scale, says Lerch, since it exists to help people get access to financing they otherwise wouldn't have. But ACA is facing its own barriers and they may be the highest of all.

Lerch says ACA must convince Wall Street that tribes deserve a chance. And this means those rating agencies have to work out standards for judging whether tribal bonds are a good buy or not.

ACA has the rating agencies looking over its own shoulder, she said. The company is just emerging from its own financial tight squeeze. Even though it seems to be pulling through, it may have to put its tribal business on hold until it is certain it won't lose its good name, she said.

If Brings Yellow gets the word out, the calls will come in, but she dreads the day when she will have to tell a qualified tribe her company can't handle its business.

For now, "Other tribes should look into it," she says, "yes, definitely."