Financial experts: Remember IGRA and prepare for the future
LAS VEGAS – Financial experts at a Global Gaming Expo panel had a clear message for tribal nations operating casinos: No one really knows what the economic future holds, but it’s best to prepare for it.
“When Down Seems Like Up: The Impact of the Economy on Tribal Gaming” was moderated by Jana McKeag, a member of the Cherokee Nation of Oklahoma and president of Lowry Strategies.
“As we all know, the downturn in the economy has affected both national and international gaming from Las Vegas to Macau to Connecticut, But unlike commercial gaming, tribal gaming presents a whole unique set of problems – financial, legal and analytical,” McKeag told an audience of tribal gaming professionals at the panel discussion Nov. 19.
Overshadowing the discussion was the dire financial situation facing the country’s largest Indian gaming operation – Foxwoods Resort Casino in southeastern Connecticut. The Mashantucket Pequot Tribal Nation, Foxwoods’ owner, had announced three days earlier that it had paid only a portion of a $21.25 million bond interest payment on $500 million in notes due Nov. 16, and would likely default on the balance within a 30-day grace period. The $500 million in notes is due in 2015. The nation is seeking to restructure more than $2 billion in debt and has entered into a forbearance agreement with its lenders, enabling it to continue negotiation through Jan. 20. 2010.
Panel members brought diverse expertise to the financial problems facing the Indian gaming industry.
Dan Lewis, Navajo, is vice chairman of Tribal Financial Advisors, Inc., a company that formed last year to help Indian tribes resolve debt-related issues and plan their long range financial goals. Lewis is a former senior vice president and national market executive for Bank of America and was the minority staff director of the U.S. Senate Committee on Indian Affairs during negotiations that resulted in the Indian Gaming Regulatory Act.
Lewis drew parallels between the IGRA era and today. The tribes would state their positions, but the states would respond with arguments about why they should be in control, he said.
“What the states felt was what’s ours is ours and what the tribes have is negotiable. So, fast forward to today and we’re kind of seeing that same situation from some of the lenders: what’s ours is ours – what we lend you – and what’s yours is negotiable in terms of your distributions and so on.”
Lewis emphasized the need to focus on IGRA and educate lenders about it.
“The education process never ends whether you’re still working with the same bank that you took the loan out with or some investor. You’re going to have to continually refresh their memories about what IGRA was actually developed for – to strengthen tribal governments and tribal economies – and it really helps your banker and other lenders to view it from that lens rather than from a corporate perspective.”
He advised tribal leaders to be proactive in talking to lenders so they are not “caught by surprise” when loans need to be restructured.
The current economy and the prospect of tribes defaulting on loans have contributed, among other things, to higher financial costs, more conservative loan structures, and reduced deal size, Lewis said.
Tribes also need to prepare for a reduction in federal appropriations since President Barack Obama has indicated the next budget will include reduced funding.
“It’s critical to prepare ahead of time to know what your situation is, to develop your own strategy and make an articulate and rational defense before your lenders,” Lewis said.
Kevin Quigley, an attorney with the Indian Gaming Business Counsel and the firm of Hamilton, Quigley, Twait & Foley, outlined the unanswered questions and evolving issues surrounding tribal casino debt restructuring – bankruptcy and credit issues intersecting with tribal law, federal gaming law, policies and political challenges that tribes themselves are working through.
In the back of everyone’s mind, Quigley said, is the question, what happens if the debt goes bad?
“We have assumptions on how this is going to work, but we really don’t know how it’s going to work.”
No one knows whether tribes can use the U.S. bankruptcy laws, because no one has tested that proposition in court, but it is generally assumed that they cannot, because of their status as sovereign nations, Quigley said.
He presented a number of unanswered questions about who actually holds the debt, whether a lender can force a tribe into bankruptcy, and what impact tribal sovereignty and federal gaming laws have on tribal debt restructuring.
“There’s no unanimity about what would be the best way to get this resolved and no one wants to step forward and have them definitely resolved because – let’s pick it up from the news that the Pequots couldn’t make their full debt payment – the answers to all this would involve those financial holders or bond holders pushing through to an end, and I don’t think either party wants that,” Quigley said.
Fredric Gushin, the managing director of the Spectrum Gaming Group and former director of gaming enforcement in Atlantic City, said that sometimes tribal leaders are “asleep at the wheel.” He urged them to constantly review and revise their casinos’ business and marketing plans.
“It’s not going to eliminate all the problems, but will place the casino operation, which is the engine of the tribe’s financial performance, in a much better position to face the downturn and make some of the hard decisions you have to make. Is it overstaffed? Is management doing its job? Are they creative enough to fulfill the guidelines set for them and if not, why not? You have to ask the right questions, and it’s an ongoing process.”