Turning Stone places bonds; income figured at $152 million


ONEIDA NATION HOMELANDS, N.Y. - As part of a successful placement of bonds to finance an ambitious expansion program at the Turning Stone Casino Resort, the Oneida Indian Nation has revealed closely guarded figures on its gaming revenue, now calculated by outside observers at more than $150 million a year.

A report by Moody's Investors Service, which issues ratings for corporate and government bond issues, said that electronic gaming machines at Turning Stone generate $106 million annually. Using an industry formula for casino income components, the Syracuse Post-Standard calculated that the total gambling take at Turning Stone was $152 million a year. The estimate, said the paper, did not include income from other businesses at the resort, such as the hotel, restaurants and the showroom.

The income figures, which are generally kept confidential even by the federal Indian gaming regulator, the National Indian Gaming Commission, were made public as part of the sale of $135 million in bonds for the resort expansion, a first for the Oneida Nation. The eight-year bonds paid an interest rate of 9.125 percent and were sold Dec. 10 through private placement. According to the Oneida Nation, the bonds were over-subscribed; meaning that demand to buy the issue was greater than the supply, always a good sign for a borrower.

(The Oneida Nation's enterprise Four Directions Media, Inc., is the owner of Indian Country Today.)

Moody's rated the bonds at "B1"; making them a "high-yield investment" often called "junk bonds" because the grade is several cuts below prime investment level. The highest rating is "AAA". A "B" rating still qualifies as an allowable investment for banks and the like, although it is considered to carry a higher risk of default.

Moody's analyst Keith Foley said the rating was a first-time designation, and he called the outlook "stable."

In a condensed report, he said that the downside of the rating included "Turning Stone's small cash flow base, dependence on a single market, construction and expansion risks, the ability to make substantial distributions and pending litigation regarding multi-game machines."

He said he also factored in "the likely difficulty that senior unsecured bondholders would face in recovering their investment in a liquidation scenario," in short, the legal barriers of tribal sovereignty. He added, "Currently, there is also uncertainty regarding whether an Indian Tribe can be a debtor under U.S. bankruptcy law, and whether a creditor would be protected under that same law."

In spite of these uncertainties, investors are increasingly willing to buy bonds to finance Indian casino expansion. Foley told Indian Country Today that he also rated issues for the Choctaws of Mississippi, the Mashantucket Pequots' Foxwoods Casino Resort, the Mohegan Sun and the Chumash of California.

The plus side for the Turning Stone issue, he said, is the Oneida Nation's own cash investment of $120 million in the expansion. He cited a positive history of financial performance and Moody's "expectation that a significant portion of the expanded capacity" from the expansion "will be easily absorbed."

"Following two previous expansions," he wrote, "Turning Stone's operating results continued to improve, suggesting that there is additional demand in the market surrounding the facility."

Foley did warn that the rating could drop if pending litigation about the multi-game machines, a staple of the Turning Stone floor, turned against the Oneidas. New York State filed a federal suit in 1995 to prevent the Oneidas from operating the machines. The District Court dismissed the suit, but the U. S. Court of Appeals reversed the ruling and the Oneidas filed a counterclaim. The suit has been stayed through early 2003 to promote an out-of-court settlement.

In a statement announcing completion of the funding package, the Oneida Nation said the expansion is expected to add 1,000 new jobs to the 3,300 current jobs created by the Nation. It said the new positions "will include entry-level, middle management and top leadership positions.

"In addition to the golf courses by renowned designers Robert Trent Jones Jr. and Tom Fazio, the expansion plans call for a new 100-suite hotel, a 300-room hotel tower, a 5,100-seat events center, a 2,500-car parking garage and a luxury spa," said the statement. "The Jones golf course, the suite hotel and the parking garage are scheduled to open in 2003. The other elements are slated for completion in 2004."

Brian Patterson, Bear Clan Representative to the Oneida Nation's Men's Council, said. "The next two years of expansion will complete Turning Stone as a unique, well-rounded destination resort, and the financing package shows that we're stable, that we're professional, that we're credible. It's a new day for the Oneida people to do business in this fashion. It's a measure of our success and our vision to create long-term economic stability and prosperity."