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Report: Mohegan finances solid

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Friday, 08 January 2010

Report: Mohegan finances solid Wells Fargo says resort is best on East Coast By WILLIAM SOKOLIC For The Norwich Bulletin Jan 06, 2010 New London, Conn. — A Wells Fargo Securities report issued last month paints a positive picture of the financial health of the Mohegan Tribal Gaming Authority. Although gaming revenues over the next two years are not expected to reach levels of fiscal year 2008, the tribe has a lot going for it, including no near-term liquidity events or risk of default, the report notes. “The MTGA has the strongest management team in the Native American universe,” author Dennis M. Farrell Jr., an analyst with Wells Fargo Securities in Charlotte, N.C. said. “Mohegan Sun is the top gaming resort on the East Coast, in our opinion.” Jeffrey E. Hartmann, chief operating officer for the authority, said, “We just did a bond deal in October. We raised $200 million in this economic environment. Not too many companies can do that.” With slot machines, Mohegan Sun generates more gambling revenue than Foxwoods and its sister property, MGM Grand at Foxwoods. And Pocono Downs has done well compared to Mount Airy and the new Sands Bethlehem in Pennsylvania, Hartmann said. Still, there are some inherent risks facing the company, according to Wells Fargo. Meeting debt obligations could be negatively affected by: — a prolonged economic slowdown. — higher gas prices in a market that depends on car or bus traffic. — a potential total smoking ban. — increased competition in neighboring states such as New York and Massachusetts, which account for 46 percent of rated players. —the risk of lenders dealing with a sovereign nation. — Bankruptcy laws and other legal remedies in a default scenario might not apply or might be difficult to enforce, thus could result in limited recoveries for bondholders. The substantial debt could have significant adverse effects, according to the authority’s annual report released last week. “Our failure to comply with covenants could result in an event of default which, if not cured or waived, could result in the acceleration of the required repayment of some or all of our indebtedness.” Despite potential adversity, auditors say the authority is in compliance with its debt service, Hartmann said. “We believe that we will need to refinance all or part of our indebtedness at or prior to each maturity,” the annual report says. “Our access to financing depends on the willingness of banks to lend to us, our credit rating and conditions in the capital markets in general. We cannot assure you that we will be able to obtain debt for refinancing or to fund our growth, or that financing options available to us will be on favorable or acceptable terms.” Yet today authority bonds are attractive for several reasons, Wells Fargo said: — Bonds trade at a significant discount to the High Yield Gaming Index. — The addition of the non-tribal Pocono Downs acts as hard collateral for debt holders. — The long-standing relinquishment agreement, which costs some $60 million a year, expires at the end of 2014. —A potential casino threat from Massachusetts is not likely before 2013. According to Wells Fargo, gaming revenues expect to turn around in fiscal 2011 to generate $1.35 billion, exceeding the 2009 figures. “We estimate the tribe will generate discretionary free cash flow — before tribal distributions — of $73 million in fiscal 2010 and $99.6 million in fiscal 2011, providing management and the tribe with some financial flexibility,” Farrell said. “Despite market pressures in Connecticut, we believe the company should be able to outperform its industry peers due to a leaner cost structure and improved cash flow performance in Pennsylvania.” http://www.norwichbulletin.com/carousel/x1409363243/Report-Mohegan-finances-solid

 

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