Lenders Wary Of Indian Casinos

Lenders Wary Of Indian Casinos
By Brad Kane

The lending pool for Native American casinos shrunk 70 percent this year, thanks in no small part to the massive debt and lackluster business from Connecticut’s two resort casinos.

Commercial banks are willing to lend around $300 million for new casino projects, down from $1 billion of a few years ago, said Rochanne Hackett, senior vice president and director of gaming development for Wells Fargo Bank. She spoke at the New England Gaming Summit on Sept. 21 at the Mohegan Sun casino in Uncasville.

The sharp decrease stems from lenders concerns about the lack of recourse if Indian casinos default on their payments. As sovereign nations, tribes and their casinos can’t be subject to takeovers or bank-directed management reorganizations. Lenders can’t even take a security interest in a tribe.

“It is a whole different ballgame when lending to the Indian gaming sector,” Hackett said.

Mohegan Sun and Connecticut’s other resort casino to the north — Foxwoods in Mashantucket — have more than $3 billion in debt thanks to ill-timed expansions and payments due at the onset of the recession. Both casinos are attempting to refinance their debt, possibly forcing their lenders to take massive losses. [forcing investors and taxpayers to pick up the tab]

On Sept. 21, Moody’s credit rating service announced a possible downgrade of the Mohegan Tribal Gaming Authority’s rating, citing payments of $527 million and $250 million due in 2011 and 2012.

Despite the tribe’s annual $1.4 billion net revenues for its Connecticut and Pennsylvania locations, Moody’s said weak consumer demand for casinos, limited near-term growth possibilities for the Mohegan Sun casino, and the possibility of Massachusetts opening to casinos could lead to the downgrading of the tribe’s rating.

The rising debt payments for Foxwoods and Mohegan Sun couldn’t have come at a worse time for the two Connecticut casinos. Slot revenue dropped steadily over the past five years; and the fiscal year that ended in June was the worst 12-month period of gaming revenues since 2001 for Mohegan Sun and since 1996 for Foxwoods.

“The sector as a whole was considered to be recession-proof, and we found out it wasn’t so recession proof,” Hackett said.

Access to capital for start-up projects is much lower, hurting three proposed Native America casinos in Massachusetts. If the Massachusetts government approves resort casinos in the state, the Mohegan tribe is eying a site in Palmer. However, Massachusetts likely will require a minimum $600 million investment for the casinos on top of land costs.

Although commercial lenders are wary, enough capital could be raised for a $600-$700 million Massachusetts casino with some creative financing, Hackett said. Options include using more than one lender and/or subordinated debt loans.