When a Wisconsin Indian tribe defaulted last month on $50 million worth of bonds it had issued in 2008, Wells Fargo Bank, the bondholders' trustee, asked a federal court to appoint a receiver to oversee the tribe's "revenues, issues, payments and profits" as spelled out in the tribe's agreement with bondholders.
In response, the Lac du Flambeau Band of Lake Superior Chippewa Indians, who own the Lake of the Torches Resort & Casino, argued that the agreement should be nullified because it hadn't been reviewed by the National Indian Gaming Commission. In calling for the appointment of a receiver, the tribe said, the agreement constituted a contract for the management of the casino.
In dismissing the case last week, a federal judge agreed with the tribe.
Although the case is expected to reverberate throughout Indian Country, it apparently sheds little or no direct light on the situation facing the Mashantucket Pequot Tribe, which defaulted late last year on a bond interest payment.
"The Wisconsin case seems to be limited in terms of setting a precedent," Megan Neuberger, an analyst who studies tribal gaming for Fitch Ratings, said Monday. "The judge ruled that the agreement would meet the definition of a management contract. … If any elements (of such an agreement) look like they give investors control over management decisions, it has to go through NIGC."
Neuberger said she has no specific knowledge of the Mashantuckets' lending agreements but that such agreements involving Indian casinos rarely provide for receivership in the event of a default.
"The crux of the issue is that if the indenture (agreement) is declared null and void, the tribe wouldn't have to pay," she said. "It would limit investors' ability to collect debt."
U.S. District Judge Rudolph Randa found that since the agreement between Wells Fargo and the Lac du Flambeau tribe had been "executed without prior approval from the National Indian Gaming Commission … the entire contract is void."
Nevertheless, tribal officials have said the tribe will meet its financial obligations, according to published reports.
In its lawsuit, Wells Fargo claimed the tribe's Lake of the Torches Economic Development Corp. was in default because it had failed to document its finances, had failed to deposit daily casino revenue into a specified fund and had diverted borrowed funds in a potentially fraudulent way.
"To be clear, the Trustee has no interest in managing or operating the Defendant's Casino Facility; it merely seeks the appointment of a temporary receiver to exercise oversight over the Defendant's finances until the principal and interest on the bonds are repaid in full," Wells Fargo said in its claim.
The tribe, in its response, indicated "the bonds were issued, in part, to fund an unrelated gaming facility in Natchez, Mississippi, which was intended ultimately to cover the Bond payments, but which has not materialized."