December 30, 2015

Foxwoods, Mashantuckets in a tenuous debt position

In spite of improving financials based on cost reductions, Foxwoods and the Mashantucket Pequot tribe that runs it, are in a precarious position if creditors called due outstanding loans to the tune of $1.7 billion.

An audit report posted on Electronic Municipal Markets Access system said absent either an extension of a forbearance agreement, set to expire Dec. 31, 2016 after being extended, or a refinancing or restructuring of the tribe's debt obligations, present cash flows of Foxwoods, while positive, plus available cash balances are not sufficient to liquidate all of the tribe's debt if called by the lenders.

Major reductions in payroll costs have helped the casino's bottom line somewhat. Over a two-year period it reduced its full-time equivalents from about 6,300 employees down to approximately 5,000 as of Sept. 30, 2015. From Sept. 30, 2014 to Sept. 30, 2015, it reduced payroll costs by $28.9 million.

Foxwoods showed net income of $37 million on net operating revenues of $923 million in its 2015 fiscal year. That compares to $23.8 million on net revenue of $960 million in 2014 and $42.5 million on net revenue of $1.04 billion in 2013.

Deloitte & Touche in its audit report said during 2014 the tribe failed to meet certain financial covenants which was an event of default under its outstanding debt obligations.

The Tribe and the lenders under its senior credit facility have entered into a forbearance agreement which, as amended, expires on Dec. 31, 2016. The lenders have agreed to forbear from exercising certain of the remedies available to them under default.

The report paints a dire picture if the forbearance agreement is not renewed upon its expiration and the credit facility lenders were to exercise certain default related remedies. Those circumstances would negatively impact the operations of the gaming enterprise. These matters raise substantial doubt about the its ability to continue as a going concern, the report concluded.

The report said since the opening of the Foxwoods facility in 1992, the tribe has spent approximately $3.0 billion in capital on the facility, including the addition of the Fox Tower in 2008 (formerly known as the MGM Grand at Foxwoods). The tribe has funded the

enterprise's construction activities through net revenues and third party borrowings. The tribe relies on the cash flow generated by Foxwoods to fund its debt service obligations.

The Mashantuckets defaulted on its debt in 2009. After that, the tribe operated under a series of forbearance agreements with its senior lenders until a settlement was reached with all of the lenders. On July 1, 2013, the tribe consummated its offers to exchange the entire $2.2 billion of outstanding debt for new debt instruments totaling $1.7 billion.

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