Choctaws' bonds get junk rating
Downgrade by Moody's comes on heels of FBI probe
Written by Jerry Mitchell
Two days after FBI agents raided the casinos at the Pearl River Resort, Moody's Investors Service downgraded the $200 million in securities borrowed by the Choctaw Resort Development Enterprise to junk bonds.
On July 12, dozens of FBI agents descended on the casinos near Philadelphia, taking both documents and hard drives.
How the tribe spends its money is under scrutiny by the FBI, which is investigating the relationship between the tribe and the Atlanta-based Mercury Gaming Group and its marketing arm, the Titan Agency.
Miko Beasley Denson, chief of the Mississippi Band of Choctaw Indians, hired Mercury and raised Mercury CEO Doug Pattison's pay in February from $60,000 a month to more than $200,000 a month. Denson told The Clarion-Ledger the raise took place because Pattison was helping with the new Bok Homa Casino.
Denson's challenger, Phyliss J. Anderson, has vowed to cancel tribe contracts with Mercury and Titan. Through a spokesperson, she would not comment Friday.
Moody's wrote in its credit report the FBI's investigation may "indicate potential internal control weaknesses and could affect Choctaw's casino operations in the future."
The service downgraded the bonds from B3 to Caa2, one of the lowest bond ratings possible.
"Obviously the bond rating agencies are watching what has now become a drama unfolding," said Phil Hardwick, coordinator of capacity development for the Stennis Institute of Government.
Earlier this month, Denson lost to challenger Anderson, 1,618 votes to 1,971 for her.
A day after the election, Denson conceded but two days later the Tribal Council threw out the results, alleging there were irregularities. A new election is set for Sept. 6.
As chief, Denson makes $466,000 a year. Anderson and other Tribal Council members earn $120,000 each a year.
Moody's report said "the recent unresolved change in leadership at the Choctaw Tribe - the owner of the casinos - could further complicate the refinancing process or could impede the Enterprise's ability to refinance timely or on economical terms."
(Page 2 of 2)
The bad news hardly ends there. On Nov. 4, the tribe must pay $71 million. The risk of refinancing that amount "has escalated significantly," Moody's wrote.
The service said the bond ratings "could be downgraded further if Moody's deems that the Choctaws will likely not be able to refinance within the next 30 to 60 days."
Because the bonds have been downgraded as junk, the tribe likely will have to look to places besides banks to get refinancing, said Randy Wall, a lawyer for Jackson law firm Watkins Ludlum Winter & Stennis.
In general, it isn't legal for banks to loan money to cover junk bonds, he said. "Banks have to have investment grade ratings."
The tribe could possibly borrow money from insurance companies or private parties, he said.
Hardwick said the Nov. 4 deadline should give the tribe enough time to pay off the $71 million due, "assuming there are no other issues, and assuming they are resolvable. If they don't resolve the issues, that adds to the perceived risk."
Even if they do get financing, "they're going to have to pay a higher interest rate," he added.
Downgrade by Moody's comes on heels of FBI probe
Written by Jerry Mitchell
Two days after FBI agents raided the casinos at the Pearl River Resort, Moody's Investors Service downgraded the $200 million in securities borrowed by the Choctaw Resort Development Enterprise to junk bonds.
On July 12, dozens of FBI agents descended on the casinos near Philadelphia, taking both documents and hard drives.
How the tribe spends its money is under scrutiny by the FBI, which is investigating the relationship between the tribe and the Atlanta-based Mercury Gaming Group and its marketing arm, the Titan Agency.
Miko Beasley Denson, chief of the Mississippi Band of Choctaw Indians, hired Mercury and raised Mercury CEO Doug Pattison's pay in February from $60,000 a month to more than $200,000 a month. Denson told The Clarion-Ledger the raise took place because Pattison was helping with the new Bok Homa Casino.
Denson's challenger, Phyliss J. Anderson, has vowed to cancel tribe contracts with Mercury and Titan. Through a spokesperson, she would not comment Friday.
Moody's wrote in its credit report the FBI's investigation may "indicate potential internal control weaknesses and could affect Choctaw's casino operations in the future."
The service downgraded the bonds from B3 to Caa2, one of the lowest bond ratings possible.
"Obviously the bond rating agencies are watching what has now become a drama unfolding," said Phil Hardwick, coordinator of capacity development for the Stennis Institute of Government.
Earlier this month, Denson lost to challenger Anderson, 1,618 votes to 1,971 for her.
A day after the election, Denson conceded but two days later the Tribal Council threw out the results, alleging there were irregularities. A new election is set for Sept. 6.
As chief, Denson makes $466,000 a year. Anderson and other Tribal Council members earn $120,000 each a year.
Moody's report said "the recent unresolved change in leadership at the Choctaw Tribe - the owner of the casinos - could further complicate the refinancing process or could impede the Enterprise's ability to refinance timely or on economical terms."
(Page 2 of 2)
The bad news hardly ends there. On Nov. 4, the tribe must pay $71 million. The risk of refinancing that amount "has escalated significantly," Moody's wrote.
The service said the bond ratings "could be downgraded further if Moody's deems that the Choctaws will likely not be able to refinance within the next 30 to 60 days."
Because the bonds have been downgraded as junk, the tribe likely will have to look to places besides banks to get refinancing, said Randy Wall, a lawyer for Jackson law firm Watkins Ludlum Winter & Stennis.
In general, it isn't legal for banks to loan money to cover junk bonds, he said. "Banks have to have investment grade ratings."
The tribe could possibly borrow money from insurance companies or private parties, he said.
Hardwick said the Nov. 4 deadline should give the tribe enough time to pay off the $71 million due, "assuming there are no other issues, and assuming they are resolvable. If they don't resolve the issues, that adds to the perceived risk."
Even if they do get financing, "they're going to have to pay a higher interest rate," he added.
Posts
No comments:
Post a Comment