Fitch Ratings said it has downgraded the issuer rating assigned to the Cow Creek Band of Umpqua Indians in Oregon to CCC from B-plus. The agency also dropped the tribe’s Series 2006A, 2006B, and 2006C tax revenue bonds, of which $97.4 million are outstanding, to CCC-plus from BB-minus. Fitch said it is concurrently withdrawing the ratings.

Analyts expressed concerns regarding management’s accounting treatment of certain related-party asset sale transactions between the Seven Feathers Casino and the tribal government, raising significant governance and internal control issues.

Due to a trend of weak operating results at Seven Feathers, Cow Creek would be in breach of the leverage covenant in its debt agreements absent the booking of gains on two related-party asset sales. Backing out these gains, the leverage ratio was 4.1 times in excess of the 4.0 times covenant level.

The definition of pledged revenues under the debt agreements — including the bond indenture, bank loan agreement, and collateral trust and security agreement — does allow Cow Creek to include non-operating income for the purposes of demonstrating compliance with financial covenants.

However, an independent certified public accountant has not yet reviewed the terms of the sales to determine if they meet the GAAP criteria for recognition. In the event that an independent CPA determines that the asset sale gains do not meet the criteria for recognition and thus cannot be included in the calculation, Fitch believes it’s likely Cow Creek will be in breach of the leverage covenant in the next several quarters, requiring it to seek a waiver or amendment from investors.

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