River Rock Casino seeks to restructure debt
THE PRESS DEMOCRAT | August 5, 2016
River Rock Casino, which took a financial blow after the bigger, glitzier Graton Resort and Casino opened nearly three years ago, is offering to restructure its overdue debt, but in a deal that would pay bondholders a fraction of what they are owed.
The offer comes more than two years after the Geyserville-area casino operated by the Dry Creek Rancheria Band of Pomo Indians defaulted on interest payments on $165 million owed to bond holders.
In a proposal announced Thursday, River Rock Entertainment Authority, the operator of Sonoma County’s oldest tribal casino, said it would offer cash payments amounting to 30 percent of the principal amount of outstanding senior notes that are due in 2018.
River Rock intends to borrow up to $50 million from Benefit Street Partners, a New York City-based investment firm, to finance the restructuring and settlement deal.
A gaming analyst on Friday indicated bondholders may have few options other than to accept the offer.
“There’s only so much creditors can extract from a casino under stress,” said Alex Bumazhny, a Fitch Ratings senior director. “Thirty cents on the dollar is still quite a bit of debt.”
He said tribes are quasi-sovereign entities that can’t be put through bankruptcy, and courts are also a risky arena for creditors of tribal casinos.
River Rock was the first tribal casino in Sonoma County when it opened in 2002. It enjoyed a monopoly until Graton became the second in the county with the opening of its large gambling hall next to Rohnert Park in late 2013. Revenues plummeted almost immediately at River Rock by about 50 percent, according to tribal officials, who blamed it on the new competition from Graton.
A year ago, David Fendrick, River Rock Casino’s general manager, said that drop stayed pretty consistent and revenues were still down in the mid 40 percent range, compared to before Graton opened.
On Friday, Fendrick said business at River Rock has leveled off. “We’ve experienced no further erosion of business since the initial drop from Graton. Business is holding steady,” he said in an email.
River Rock reported $124 million in revenues in 2010, the last full year it publicly disclosed such financial information.
Last year, the Dry Creek Pomos also renegotiated the amount they had agreed to pay Sonoma County for off-reservation impacts from the casino for things like sheriff’s coverage and road maintenance.
The tribe reduced by $33 million the amount it was obliged to pay the county under a new payment schedule that was extended from 2020 to 2030. In return, the tribe is precluded until early 2025 from trying to build a casino on land it owns south of Petaluma.
River Rock has been forced to make a series of cost cutbacks as a result of its precipitous drop in revenues. Last year it employed 388 people, down from a high of 600.
The number of slot machines and table games were also reduced from a previous high of 1,300 slots and 22 table games. Last year, it had 1,150 slots and 18 table games.
Fendrick declined comment on the planned restructuring and resettlement proposal, which was described in a news release.
Dry Creek Tribal Chairman Chris Wright, who typically does not speak to the media, did not respond to a request for comment.
In addition to the 30 cents on the dollar that River Rock intends to pay bondholders, the press release also mentioned cash held in a “Parity Lien Debt Account” that will be paid to bondholders. It did not state the amount.
Institutional holders of River Rock’s senior notes are represented by an “Ad Hoc Holder Group,” which must approve the restructuring of the debt.
River Rock intends to hold a conference call with the group to discuss the offer. Also participating will be Stuyvesant Square Advisors, acting as financial advisor to River Rock, the Senior Notes trustee, and attorneys for all the parties.
To obtain financing for the settlement, River Rock will need to show it’s supported by majority of the holders of the principal amount of the senior notes.
Most of the half-dozen or so other tribal casinos across the country that defaulted on their obligations convinced creditors to accept new bonds with a lower face value, or other modifications, Fitch Ratings analyst Bumazhny said Friday.
“Usually it’s new debt to an existing creditor rather than cash,” he said of the typical restructuring, adding that River Rock’s cash offer could be attractive.
“Usually it’s safer to take cash than a new piece of debt,” he said.