The Mashantucket Pequot Tribal Nation, which owns and operates the Foxwoods Resort Casino in Connecticut, the largest casino in North America, is reportedly close to an agreement with its creditors to restructure its more than $2 billion debt, the largest such debt in Indian gaming.

The Wall Street Journal last week reported that the tribe “has been trading legal documents with banks and bondholders, including Bank of America Corp.” and “is nearing a deal.”

Scott Butera, CEO of Foxwoods, hinted at a resolution last week during an interview. “We hope that this is certainly done by the end of the year,” he said. A spokesman for the tribe did not contradict the report.

Those creditors include Bank of America Corp. and Wells Fargo & Co. The reputed restructuring would end up with some creditors losing a portion of the principal they loaned the tribe. Under the worse case they would lose 65 percent of their investment. However, the reported restructuring would involve extending due dates by several years under lower interest rates and betting that the casino will bounce back from its current slump. Some loans would be pushed back 13 years, others 17 years. But the restructuring could also include reducing the overall debt to $1.5 billion.

The slump in profits for Foxwoods began two years ago at about the same time that other casinos found that they weren’t immune to the recession. The tribe has been seeking some sort of restructuring ever since then.

The $2 billion debt was used to build the Foxwoods Casino, which opened in 1992, and its expansion, that included the $700 million MGM Grand at Foxwoods and its hotel, which was announced in April of 2008, just a few months before the Wall Street financial meltdown.

The Financial Times quoted, Joseph Kalt, co-director of the Harvard Project on American Indian Economic Development as saying about the situation, “It’s the same old story…A lot of cash flowing, tribes investing like mad and then getting hit by the recession.”

The creditors have little recourse besides restructuring since Indian tribes are sovereign nations that, under normal circumstances, cannot be sued, forced into bankruptcy, or their assets seized. The 1,000 members of the tribe always have precedence over other creditors.  Under the structure created when the casino opened, senior lenders (i.e. banks) are paid first, bondholders second.

The tribe’s most senior lender is the late Kien Huat, who founded the Genting Group, one of the largest casino developers in the world. One of the most onerous factors of the tribe’s debt, from the tribe’s perspective, is a requirement that it pay Kien Huat more than $8 million annually over and above regular debt payments. The reported deal would have the tribe pay Kien Huat’s company the lump sum of $21 million in return for dropping that annual payment.

Federal law also prevents a tribe from giving shares in the business in exchange for debt.

How this debt is handled may have ramifications for other Indian gaming tribes, principally in their ability to get new loans. Currently an estimated $20 billion in Indian gaming loans are outstanding in the United States.

Foxwoods revenues allegedly fell 5.8 percent, according to the University of Massachusetts Dartmouth Center for Policy Analysis, which also estimates that the casino’s revenue peaked at $1.5 billion in 2006 and was $1.2 billion in 2010, which left the tribe unable to service its debt. Any such figure is an educated guess, since Indian tribes are not required to release their finances to the public. However it can be estimated due to the fact that the tribe is bound by its compact with the state to pay 25 percent of its profits.

However, the statement by CEO Butera that the casino’s business has improved this year over last was made to the public. Butera has a history of helping casinos that are in bankruptcy out of it. He has been leading the casino’s talks with its creditors since he joined Foxwoods in December.

When revenues began to dip the tribe failed to repay a large credit line and skipped a payment to its bondholders in late 2009. That same year the tribe hired an investment bank to help it restructure the debts. It helped the tribe reach a forbearance agreement with its senior creditors in January of this year.

Standard & Poor has given the tribe’s bonds its lowest “D” rating.

By Staff