Lenders Wary Of New Casinos
While the effort to establish resort-style casinos may have failed on Beacon Hill this summer, there is talk that casino advocates may double-down for another legislative push.
But there remains a question as to whether there will be any money for new large-scale casinos — particularly Native American casinos.
The lending pool for Native American casinos shrunk 70 percent this year, thanks in no small part to the massive debt and lackluster business from Connecticut’s two resort casinos.
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Commercial banks are willing to lend around $300 million for new casino projects, down from $1 billion of a few years ago, said Rochanne Hackett, senior vice president and director of gaming development for Wells Fargo Bank. She spoke at a recent New England Gaming Summit at the Mohegan Sun casino in Connecticut.
In Massachusetts, the Mashpee Wampanoag tribe has expressed an interest in developing a casino. The effort to legalize gambling this summer was seen as a way for the state to have some control if a Native American casino gets off the ground.
The sharp decrease in financing such endeavors stems from lenders’ concerns about the lack of recourse if Native American casinos default on their payments.
As sovereign nations, tribes and their casinos can’t be subject to takeovers or bank-directed management reorganizations. Lenders can’t even take a security interest in a tribe.
“It is a whole different ballgame when lending to the Indian gaming sector,” Hackett said.
Mohegan Sun and Connecticut’s other resort casino to the north — Foxwoods in Mashantucket — have more than $3 billion in debt thanks to ill-timed expansions and payments due at the onset of the recession. Both casinos are attempting to refinance their debt, possibly forcing their lenders to take massive losses.
On Sept. 21, Moody’s credit rating service announced a possible downgrade of the Mohegan Tribal Gaming Authority’s rating, citing payments of $527 million and $250 million due in 2011 and 2012.
Despite the tribe’s annual $1.4 billion net revenues for its Connecticut and Pennsylvania locations, Moody’s said weak consumer demand for casinos, limited near-term growth possibilities for the Mohegan Sun casino, and the possibility of Massachusetts opening to casinos could lead to a downgrade of the tribe’s rating.
The rising debt payments for Foxwoods and Mohegan Sun couldn’t have come at a worse time for the two Connecticut casinos.
Slot revenue dropped steadily over the past five years; and the fiscal year that ended in June was the worst 12-month period of gaming revenues since 2001 for Mohegan Sun and since 1996 for Foxwoods.
“The sector as a whole was considered to be recession proof, and we found out it wasn’t so recession proof,” Hackett said.
If the Massachusetts government approves resort casinos in the state, the Mohegan tribe is eying a site in Palmer.
However, Massachusetts likely will require a minimum $600 million investment for the casinos on top of land costs.
Although commercial lenders are wary, enough capital could be raised for a $600-$700 million Massachusetts casino with some creative financing, Hackett said.
Options include using more than one lender and/or subordinated debt loans.
Brad Kane is a staff writer for the Hartford Business Journal, a sister publication to the Worcester Business Journal.
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