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Foxwoods Resort Casino, one of the world’s largest casinos, has failed to make a full payment on its debt, leading to a default and another credit-rating downgrade.

The Mashantucket Pequot Tribal Nation, which owns Foxwoods, in Ledyard, Conn., said it has paid $14.2 million of the $21.25 million semi-annual interest payment that was due Monday on $500 million in debt notes. The tribe said it does not anticipate paying the balance within a 30-day period, resulting in a default.

The problems come a few months after Foxwoods and Mohegan Sun tried to lure gamblers away from Atlantic City. The American Indian casinos, usually fierce competitors, jointly ran billboards in New Jersey and New York poking fun at the “Jersey snore” and the “boredwalk” in July.

The tribe, which has been seeking to restructure more than $2 billion in debt, said its efforts are “separate and distinct” from operations at Foxwoods and will not affect customers, employees, suppliers or business partners.

Standard & Poors lowered Foxwoods’ credit rating to D, its lowest rating. Lenders will be more hesitant to make loans to Foxwoods, said Craig Parmelee, S&P’s managing director.

“The availability and cost of financing for Foxwoods in the future is in question,” Parmelee said.

Parmelee said he did not expect Foxwoods to close, however. Lenders can take possession of commercial casinos that default and sell them to third parties, but that option likely is not available when dealing with American Indian tribes who operate as sovereign nations, he said.

The most likely scenario is a renegotiation of the debt, Parmelee said. That could mean some loan forgiveness, but lenders might question payments to tribal members and review the tribe’s business plan, he said.

“I don’t think shutting down the casino is the best route to meeting the goals of either party,” Parmelee said.

The Foxwoods default does not initially appear to directly affect Atlantic City casinos’ competitive standing.

Jeffrey Vasser, president of the Atlantic City Convention and Visitors authority, said the “incredibly challenging” economy has forced businesses to make difficult decisions. He said Atlantic City is well positioned to compete in the gaming market as a destination resort.

“We have invested heavily in expanding and enhancing our tourism product over the past five years,” Vasser said. “And despite the economic challenges that our industry as a whole faces nationwide, we feel we are better positioned than most to see the benefits of the economy’s recovery.”

Joseph Corbo, president of the Casino Association of New Jersey, declined comment.

The Press of Atlantic City reported in September that Connecticut’s Indian-run casinos, Foxwoods and Mohegan Sun, were suffering from the recession’s harsh impact on casino gaming nationwide. Some commercial casinos not owned by American Indian tribes have gone into bankruptcy. Money gambled on slot machines at the two Connecticut Indian casinos had dropped by $1 billion in recent years.

Tribal officials said last month they had entered into a forbearance agreement with senior lenders that extends through Jan. 20. Such deals occur when a creditor gives up the right to immediate repayment of a loan by a debtor under certain conditions.

The most recent data available shows that Foxwoods continues to experience gaming declines.

The amount gambled on Foxwoods slot machines in September was 18 percent less than the slots handle in September 2008. Revenue provided by Foxwoods to Connecticut state government in the fiscal quarter ending Sept. 30 dropped by 10 percent from one year ago. Foxwoods has table games, as well, but is required to report only slots revenue.

Foxwoods has laid off about 800 workers since September 2008.

Atlantic City casinos and the Foxwoods were more direct competitors years ago, before racetrack casinos sprang up in a number of states. Statistics show that the Foxwoods now draws gamblers mainly from Connecticut and surrounding states.

Only 2 percent of Foxwoods customers in 2007 came from New Jersey, the Spectrum Gaming Group of Linwood reported in June. Even fewer gamblers were from Pennsylvania and Delaware. The most competition is in New York, where 9 percent of Foxwoods patrons and 19 percent of Mohegan Sun customers originated in 2007.

Several American Indian casinos across the country, including two in New Mexico and one in Michigan, are defaulting on debt as consumers cut back on discretionary spending, Parmelee said.

Foxwoods, which has about 10,000 employees, more than 7,000 slot and video poker machines and which made more than $700 million in profits last year, is the most high-profile example, said Megan Neuburger, director at Fitch Ratings. She said investors have long wondered what would happen if a tribe, which has national sovereignty and may not be able to work through conventional bankruptcy proceedings, defaulted on its debt.

“This is definitely a precedent-setting situation,” Neuburger said. “Certainly everyone in the investing community will be watching this to see what the outcome is.”

Foxwoods, along with Mohegan Sun in Connecticut, underwent expansions just before the economic downturn. But Mohegan Sun, operated by the Mohegan Tribe, has said the casino is financially healthy.

“For those entities that took on additional debt to fund expansions, that certainly was a factor that contributed to many of the defaults across the gaming industry in the last two years,” Parmelee said.

The Associated Press and Press of Atlantic City staff writer John Froonjian contributed to this report.

2 comments:

• American_Gaming_Guru (242) posts 1:30 pm

  Wow. This is huge! Foxwoods was once the world's largest and most profitable casino. It pounded on AC and is now taking its own lumps. Finally someone reports that this slump has hurt much more than AC!

• RandomX856 (158) posts 1:19 am

  Serves them right for thinking they were better than A.C.! The worst is still yet to come... Massachusetts opening up casinos within the next several years. Goodbye Connecticut! You're days are numbered. The worst is over for A.C. Yours is only just beginning.

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