The Deal: Mohegan Sun Operator Asks to Amend Covenant

NEW YORK ( The Deal) -- Mohegan Tribal Gaming Authority, the Native American tribal entity that operates the Mohegan Sun casino, announced on Tuesday, July 23, that it has opened a consent solicitation asking its most senior class of noteholders to amend a covenant in order to pave the way to refinance subordinated debt.

Uncasville, Conn.-based Mohegan already refinanced its debt in Feb. 2012, but a restructuring professional who has experience in the tribal gaming space thinks this additional refinancing is a logical move.

"These coupons have relatively high rates, and most of them are trading above par in the case of second-lien notes, while juniors are trading near par, so it's not surprising that they're looking to change their maturity profile," the source said. Mohegan is asking holders of its 11.5% second-lien senior secured notes due 2017 to amend a covenant that would allow the tribe to refinance two levels of subordinated debt -- the 10.5% third-lien senior secured notes due 2017 and the 11% senior subordinated toggle notes due 2018.

Mohegan is also seeking to amend another covenant to explicitly allow it to do business with the Mohegan Tribe of Indians of Connecticut if it were to open a hotel on tribal land.

The restructuring source believes that uncertainty about Mohegan's future is conducive to a "wait-and-see" approach. "There are still questions about events that are coming down the pipe," he said.

The casino will see one big drain on its revenues disappear in the beginning of 2014 when Mohegan's legal obligation to give 5% of its gross revenues each year to the casino's initial backer, Trading Cove Associates, expires.

On the negative side, Massachusetts' plan to get into the gaming business with three new casinos will heighten Mohegan's competition.

"Whether Mohegan will be part of that opening of new casinos in Massachusetts is still up in the air," the source said.

Pennsylvania, Rhode Island and New York also plan to enter the gaming space, creating even more regional competition for Northeastern players such as Mohegan. For now, Mohegan's main competition is Ledyard, Conn.'s Foxwoods Resort Casino, another tribe-owned facility that completed a complex debt restructuring process on July 1.

Both Mohegan and Foxwoods are making plays to open casinos in Massachusetts, and another debt refinancing would put Mohegan in a better position to expand.

Pursuant to its consent solicitation offer, Mohegan's noteholders would receive $2.50 per $1,000 in notes tendered before the expiration date.

A source familiar with the offer said the primary purpose of the consent solicitation is to lower interest rates and potentially extend debt maturity dates. If the tribe gains consent, it will follow up with an exchange offer that would ask holders of its 10.5% notes and 11% notes to trade their subordinated notes for senior unsecured notes with amended terms.

The solicitation closes at 5 p.m. on July 30.

Credit Suisse Securities (USA) is the solicitation agent for the offer, while D.F. King & Co. Inc. is the information agent.

During its 2012 refinancing, Mohegan issued $200 million in 11.5% second-lien senior secured notes, $344.2 million in 11% senior subordinated toggle notes, $417.8 million in 10.5% third-lien senior secured notes and a $225 million, 9.5% first-lien term loan due 2016.

Mohegan's 2012 restructuring wasn't about reducing the debt load or giving out haircuts, the restructuring source said. "They've delayed the day of reckoning until a time when they'll have a better data pattern to work with," he said, adding, "No one incurred any pain or took permanent impairments." Although legally complex restructuring situations at Native American casinos such as Foxwoods Resort Casino and Chukchansi Gold Resort & Casino may make investors nervous, Mohegan looks like a safer bet.

The restructuring source believes Mohegan has one of the best reputations among tribe-owned casinos on Wall Street. "Mohegan gets the gold star for corporate citizenship," he said, explaining that Mohegan has been very transparent in terms of making SEC filings to release financial information, holding analyst days and being available to the investment community.

"When they get new financing, it will be cheaper than it would be if their financial situation was opaque," he said, adding, "Mohegan needs Wall Street to grow, so it will behave."

Blackstone Group LP advised Mohegan on its 2012 restructuring, while Wachtell, Lipton, Rosen & Katz provided legal advice.

Mohegan executives didn't respond to requests for comment.

-- Written by Lisa Allen in New York

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