Under the Foxwoods restructuring agreement, the capital structure is divided into four secured tranches. A source familiar with the restructuring process said it's highly unusual to have three tranches of debt that are subordinated but still secured.
In many restructuring situations, bondholders that take losses will receive equity to give them a possibility of recovery if the business turns around. Foxwoods, however, couldn't provide that deal sweetener, since tribes aren't legally permitted to issue equity.
As a result, said one legal counsel who worked on the deal, "The bottom two classes of bonds received a haircut as part of the restructuring, so in place of that, they received contingent interest obligations."
The contingent interest obligations are structured so that, if the casino performs well in the future, junior creditors will receive a payout to help compensate for the losses they swallowed during the restructuring process, the lawyer said.The legal counsel said the tribe got a letter of declination from the National Indian Gaming Commission -- an independent federal regulatory agency -- stating that documents relating to the new securities don't constitute management agreements. The letter of declination, which formally distinguishes these securities from equity, was a necessary closing condition for the deal. Those securities were designed specifically for this unusual situation, sources said.