The California Appeals Court has declined to expand the source of payment for tribal debt from the Cabazon Band of Mission Indians in the case of Wells Fargo Bank, N.A. v. Cabazon Band of Mission Indians.
Usually municipal debt is limited to a defined source of funds. That source can be expanded when the issuer of the bonds becomes distressed, but only under court.
In the case Wells Fargo had sought to enlarge the source of the funds in a debt owned by the tribe, which owns the Morongo Casino Resort & Spa. The debt was incurred in 2006 when the tribe financed the building of anew parking garage for its facility for $56.5 million.
The tribe paid the debt down to $41 million and the bond was issued under an indenture with Wells Fargo as trustee. The debt was held by the authority that serves as the tribe’s casino development arm. In 2007 that authority obtained a bridge loan for $153 million through Merrill Lunch to pay off casino debt and build improvements.
The Great Recession hit and the casino revenues declined, leading to several debt restructurings. Until 2012 the tribe paid its indenture debt, but ceased to do so in March of that year.
Wells Fargo sued in California court seeking damages for breach of contract and to try to compel the tribe to start depositing funds in its indenture account again.
The court sided with Wells Fargo but the Appeals Court overruled that court, writing that the documentation of the loan agreement did not authorize Wells Fargo to have access to funds that weren’t stipulated as being in the indenture account.
