A Fresh Look at Tribal Gaming Bonds: Are They Still A Good Bet? - GLC Advisors & Co - National Federation of ...
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A Fresh Look at Tribal Gaming Bonds:
Are They Still A Good Bet?
National Federation of Municipal Analysts
May 6, 2010
GLC Advisors & Co.Summary of Tribal Finance
Size of the Tribal Market
Commercial Loans estimated $7-8 billion.
High yield bond market estimated at $5-7 billion.
Tax exempt market estimated approx $1.2 billion.
Future Tribal Capital Needs
Trend will be refinancing of high yield bonds issued in 2003-2007.
More modest Greenfields and expansions.
Tribes will seek an expansion of the $2 billion Tax Exempt Development Bonds
allocation.
May 6, 2010 Tribal Gaming Bonds 2Bond Issuance in Indian Country: 2004 - Present
42 Tribes have issued $9.9 billion in the bond market since 2004.
Total # of Transactions 69 Average Transaction $144 million
Tribes currently in default 14% (6 out of 42) Median Transaction $105 million
Bond Issuance Use of Proceeds
(in thousands)
12% 1%1% 1%
14%
Gaming
Taxable Public Improvements
Tax-Exempt Healthcare
Pow er
88%
83% Undisclosed
Taxable Bonds Tax-Exempt Bonds
Total issuance $8.78 billion Total issuance $1.15 billion
Average transaction $167 million Average transaction $59.2 million
Median transaction $150 million Median transaction $38.7 million
Pricing Pricing
Average yield 8.48% Average yield 5.90%
Weighted average yield 7.59% Weighted average yield 4.93%
May 6, 2010 Tribal Gaming Bonds 3Common Indian Gaming Structure
Services provided by Tribe
Gaming Enterprise Tribal Activities
Payment for Tribal Services
Net Cash
Flow
Trustee Operating expenses of
Controlled Senior [Secured] Creditor
Tribal Government
Waterfall Obligations of Gaming
Enterprise
Subordinated Creditor Tribe capital projects
Distributions to
Tribe Creditor
Tribal Members
Obligations of Tribe (if any)
Tribe Subordinated Creditor
Cash Flow to Tribe
May 6, 2010 Tribal Gaming Bonds 4Near-Term Tribal Debt Maturities
Maturing Debt
1,000 MM
919 MM
900 MM
800 MM
701 MM
700 MM
652 MM
600 MM
500 MM
394 MM
400 MM
300 MM
221 MM
202 MM 206 MM 202 MM
200 MM
100 MM
44 MM 55 MM
0 MM
0 MM
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020+
Note: Consists of taxable and tax-exempt debt (excluding bank debt) for Foxwoods, Mohegan, Inn of the Mountain Gods, River Rock, and Seneca.
May 6, 2010 Tribal Gaming Bonds 5Tribal Gaming Comparables
Inn of the
Foxwoods (1) Mohegan (2) Mountain Gods (1) River Rock Seneca
Net Revenues $1,288 $1,433 $112 $124 $576
% Growth (4.6%) (7.5%) (6.0%) (5.5%) (7.2%)
EBITDA $261 $311 $37 $54 $175
% Margin 20.3% 21.7% 32.9% 43.8% 30.4%
Debt / EBITDA 7.9x 5.7x 5.5x 3.7x 3.7x
# of Slots 7,428 9,185 1,280 1,212 6,514
# of Hotel Rooms 1,943 1,200 273 na 816
Notes:
(1) Represents Tribes currently in default.
(2) EBITDA is before $61 million in relinquishment payments paid to TCA related to the terminated management agreement with TCA.
May 6, 2010 Tribal Gaming Bonds 6Tribal Gaming Pricing
BBG/IDC YTW Amount
Description Coupon Maturity Price (4/20/10) Outstanding Ratings (M/S/F)
FOXWOODS/MASHANTUCKET
FSA-Insured Taxable Muni 6.570% 9/1/2013 $98.89 6.94% 113 MM Aa3 / AAA / NA
MBIA-Insured Taxable Muni 6.910% 9/1/2012 $74.95 20.94% 146 MM Baa1 / A / WD
Uninsured SRO 5.912% 9/1/2021 $61.53 12.49% 250 MM WR / D / NA
SSRO Tax-Exempt CAB Wtd Avg 0.000% 9/9/2014 $44.43 57.78% 18 MM WR / NR / NA
SSRO Tax-Exempt CIB Wtd Avg 5.764% 1/26/2028 $52.94 13.86% 348 MM WR / NR / NA
Taxable Sub Notes 8.500% 11/15/2015 $27.13 50.97% 500 MM WR / D / NA
INN OF THE MOUNTAIN GODS
Taxable Corp 12.000% 11/15/2010 $41.00 272.24% 200 MM Ca / D / NA
MOHEGAN
Tax-Exempt Wtd Avg 5.846% 7/23/2027 $80.18 8.07% 103 MM NA / B+ / NA
Taxable Second Lien Notes 11.500% 11/1/2017 $107.19 9.78% 200 MM B1 / B- / NA
Taxable Senior Unsecured Notes 6.125% 2/15/2013 $90.00 10.32% 250 MM B2 / CCC+ / NA
Taxable Corp 8.375% 7/1/2011 N/A N/A 2 MM Caa2 / CCC+ / NA
Taxable Corp 8.000% 4/1/2012 $95.25 10.78% 250 MM Caa2 / CCC+ / NA
Taxable Corp 7.125% 8/15/2014 $86.00 11.32% 219 MM Caa2 / CCC+ / NA
Taxable Corp 6.875% 2/15/2015 $80.10 12.50% 150 MM Caa2 / CCC+ / NA
RIVER ROCK
Taxable Corp 9.750% 11/1/2011 $96.25 12.54% 200 MM B2 / B+ / NA
SENECA GAMING
Taxable Corp 7.250% 5/1/2012 $100.00 7.25% 300 MM Ba2 / BB / NA
Taxable Corp 7.250% 5/1/2012 $98.50 8.07% 200 MM Ba2 / BB / NA
Tax-Exempt Muni 5.250% 12/1/2016 $93.93 6.39% 33 MM NA / BB / NA
Tax-Exempt Muni 5.000% 12/1/2023 $85.69 6.61% 87 MM NA / BB / NA
Taxable Muni 6.750% 12/1/2013 N/A N/A 27 MM NA / BB / NA
Taxable Weighted Average 35.18%
Tax-Exempt Weighted Average 12.72%
May 6, 2010 Tribal Gaming Bonds 7Publicly Traded Tribal Debt Spreads
Since August 26, tribal spreads have widened ~144 bps and ~141 bps when compared to the B and high yield gaming
indices, respectively.
Tribal Bond Spreads to B Index and HY Gaming Index
11/1/09
5%
Rodney Butler replaces Michael
Thomas as MPTN chairman 1/11/10
Lac Du Flambeau court
8/26/09
ruling
Michael Thomas MPTN
announcement
4%
3%
2%
1%
0%
17-Aug-09 16-Sep-09 17-Oct-09 17-Nov-09 18-Dec-09 17-Jan-10 17-Feb-10 20-Mar-10 20-Apr-10
Average Spread to B Index Average Spread to HY Gaming
Note: Consists of non-distressed Tribal gaming credits including Choctaw, Chukhansi, Mohegan, Pokagon, River Rock, San Pasqual, Seneca, Shingle Springs, Tunica-Biloxi and Turning Stone.
May 6, 2010 Tribal Gaming Bonds 8Tribal Gaming Defaults
Tribal Defaults
Commercial bank loan default rates 5-6%.
High yield bond defaults becoming prevalent.
Correlation to leverage ratios.
Tribal Gaming Defaults 2008 - 2010
2008 Cabazon Band of Mission Indians Fantasy Springs Resort Casino
2009 Mescalero Apache Tribe Inn of the Mountain Gods
2009 Little Traverse Bay Band of Odawa Indians Odawa Casino Resort
2009 Mashantucket Western Pequot Tribe Foxwoods Resort Casino
2009 Pueblo of Pojoaque Buffalo Thunder Resort & Casino
2009 Shingle Springs Band of Miwok Indians Red Hawk Casino
2009 Snoqualmie Tribe Snoqualmie Casino
Source: Standard & Poor’s, Moody’s, public news sources.
May 6, 2010 Tribal Gaming Bonds 9Common Weaknesses in Indian Gaming Structures
Structural Weaknesses
Inability for creditors to receive equity / assume control
There is no ability to convert debt to equity or allow creditors to control operations either
consensually or by force.
Creditors in a restructuring can be held hostage by the inalienable right of the Tribe to
operate the gaming enterprise.
No recourse to bankruptcy
Limited waiver of sovereign immunity.
Restructuring without 100% bondholder consent is difficult.
No court imposed transparency.
Cannot pledge reservation assets
Ability to enforce judgment on reservation land is difficult and untested
Complex Regulatory Scheme
IGRA.
NIGC.
May 6, 2010 Tribal Gaming Bonds 10Common Weaknesses in Indian Gaming Structures
Negotiable Opportunities for Improvement
Recourse to tribal assets (whether on or off the reservation)
These assets could be significant.
Expanded Collateral
Collateral for bondholders has historically limited to waterfall cash flow.
Limits on transactions with the Tribe
Tribe often provides services to gaming enterprise which are not
required to meet the fair market test.
The gaming enterprise needs the Tribe to survive yet creditors are often
unaware of what is required to keep the Tribe financially healthy.
There is often little visibility by creditors into the Tribe’s activities.
May 6, 2010 Tribal Gaming Bonds 11Lac du Flambeau: Wells Fargo v. Lake of the Torches EDC The Indian Gaming Regulation Act (“IGRA”) regulations define “management contract” as “any contract . . . between an Indian tribe and a contractor . . . if such contract or agreement provides for the management of all or part of a gaming operation.” 25 C.F.R. § 502.15. Accordingly, a “necessary condition for a management contract is that it grant to a party other than the tribe some authority with regard to a gaming operation.” Machal, Inc. v. Jena Band of Choctaw Indians, 387 F. Supp.2d 659, 665 (W.D. La. 2005). May 6, 2010 Tribal Gaming Bonds 12
Lac du Flambeau: Wells Fargo v. Lake of the Torches EDC
The provisions in the Trust Indenture relied upon by the court in
making its ruling:
Capital expenditures that exceed certain limits only with consent
of bondholders.
Appointment of a Management Consultant at the direction of
bondholders if the Debt Service Ratio falls below a certain level.
Consent of Bondholders required to replace Senior
Management.
Bondholders can require the hiring of new management or
appointment of a receiver upon default.
May 6, 2010 Tribal Gaming Bonds 13Lac du Flambeau: Wells Fargo v. Lake of the Torches EDC
Current Status of the Case
Bond Trustee's Motion to Amend. On April 22, 2010, Court
denied the motion and upheld its ruling. And stated that
the Bonds were not approved by NIGC and thus also void.
Appeal of the ruling is likely.
Implications for Tribal Gaming Finance
May 6, 2010 Tribal Gaming Bonds 14Implications: What Should Investors Require in the Future? Better economics to compensate for higher risk Less leverage / higher interest. Faster Principal Amortization Debt Service Reserve Funds Collateral Off-reservation collateral. May 6, 2010 Tribal Gaming Bonds 15
Implications: What Should Investors Require in the Future?
Tighter financial covenants
Restrict dividends to the Tribe/Retain Operating Reserves.
Monthly debt service requirements.
EBITDA/Interest.
Leverage Limits (incurrence and maintenance).
Tribe transparency
Strict definition of gaming enterprise with full arms-length,
fair value test for all transactions with Tribe, including
employees and management; OR
Complete transparency and comingling of Enterprise and
Tribe assets inside of a closed credit structure.
May 6, 2010 Tribal Gaming Bonds 16Implications: What Should Investors Require in the Future?
Full sovereign immunity
Management
More diligence on management qualifications and
relationship to Tribe and/or other creditors.
Ability for creditors to direct change in management , or to
bring in management consultants, under certain
circumstance.
Mandatory disclosure and enhanced direct communication
Opinion regarding NIGC approval
May 6, 2010 Tribal Gaming Bonds 17Contact Information
Ann-Ellen Hornidge Bill Lomax
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo Native American Financial Officer Assoc.
617-348-1657 Member of Gitxsan Nation
ahornidge@mintz.com 650-388-7004
william@nafoa.org
Thomas Benninger Dana S. Fusaris
GLC Advisors & Co. Fundamental Advisors LP
415-962-8515 720-279-7560
tmb@glcllc.com df@fundamentaladvisorslp.com
May 6, 2010 Tribal Gaming Bonds 18You can also read
