Almost under a smokescreen, the Mashantucket Western Pequot tribe will privately place $180 million of taxable special revenue bonds a week from Monday.
Rated Baa2 by Moody's Investors Service, the main risk associated with the bonds is that they are solely backed by "excess free cash flow" generated by the tribe's Connecticut-based Foxwoods Resort and Casino, which is regarded as one of the most profitable gaming enterprises in the world, and is the nation's largest gaming establishment.
Excess free cash flow is what remains after satisfying operating expenses and debt service relating to the tribe's prior obligations, said Maria Matesanz, a senior vice president at Moody's. The tribe has $400.8 million of previous debts outstanding, according to Moody's.
The hazards associated with relying on excess cash is offset by high debt-service coverage levels, she said.
"According to the latest projections, debt service coverage for these bonds by the excess cash flow is expected to range between 6.7 and 9.4 times from 1999 to 2003," Matesanz said.
To one investor who had described the Mashantuckets' last $500 million issue as "too rich," those levels make the deal seem attractive, judging from the scant information available.
"The tribe always comes out with bonds in a secretive way. They don't want to reveal what their payouts are - from the slot machines to the tables," said one investor for a large insurance company.
Because the debt will only be sold to "qualified institutional investors," the tribe is not required to comply with the extensive general disclosure requirements of a public offering. Moody's noted that the tribe had even restricted the information the agency could include in its report.
"I don't know what their economic picture looks like today, but it has always been strong in the past," an investor for a national fund said. "Their pool of customers tended to be the senior citizens, mainly from Boston and the surrounding suburbs, and I don't think that group has gone away."
Standard & Poor's is keeping its rating for the issue confidential under an agreement with the tribe. Back in August, the agency revised the outlook on the tribe's debt to stable from negative. Publicly, the agency rates the tribe's 1995 note series BBB-plus and has an BBB-minus underlying rating for $400 million of revenue bonds.
"We revised our outlook last summer on the tribe to stable from negative," said Greg Zappin, a director at Standard & Poor's. "The tribe had shown improved operating performance and reduced expenditures. All I can say is that our outlook hasn't changed."
Proceeds from the issue will go towards refinancing existing bank debt and will finance other casino projects, a tribe spokesman said.
The tribe is still in the process of choosing insurance, the spokesman said. The lead underwriter is Morgan Stanley Dean Witter Inc.
