End of payments likely to hearten tribe's lenders

Mashantucket - While certain to fan discontent among tribal members, the Mashantucket Pequot Tribal Council's elimination of members' per capita payments is likely to sit well with the tribe's lenders, according to financial sources.

The council has informed members that their monthly distributions - said to range, on average, between $7,500 and $10,000 as recently as a year ago - will cease Dec. 31.

"I do think it's prudent of them, recognizing the tough straits they're in," Tom Foley, an Indian gaming consultant and former vice chairman of the National Indian Gaming Commission, said Monday of the tribal council's move. "It's a stark development."

It's not clear whether the council is ending the payments of its own volition as it seeks to restructure more than $2 billion in debt, or whether it's been more or less forced to do so by its senior lenders: Kien Huat, the Malaysian group that bankrolled construction of the tribe's Foxwoods Resort Casino, and a Bank of America-led syndicate that provided a $700 million credit line that matures today.

Several financial sources said they expected the banking syndicate to give the tribe more time to pay off the "revolver," and that today's due date is essentially "a non-event." The tribe, which has indicated in the past that it does not plan to comment on the restructuring talks until they are concluded, did not respond to questions Monday.

Under a revenue-distribution system referred to as a "waterfall," all net revenue from the operation of Foxwoods — after operating expenses and payments to the state are deducted — flows into bank accounts from which the tribe's creditors are satisfied in accordance with a specified order of priority. After Kien Huat and the banks, the creditors include holders of special revenue obligation bonds, subordinated special revenue obligation bonds and short-term notes. After payments at those five levels of debt, the remaining revenue reaches the tribe, which uses it to fund tribal government and per capita payments.

According to sources, the banks have a lot to say about how much money is available to the tribe.

All of the tribe's "stakeholders" are likely to be encouraged by the tribe's plan to eliminate per capita payments, sources said. The tribe's creditors may also be heartened by a Philadelphia Inquirer report Sunday that Harrah's Entertainment, the country's largest gaming company, could join forces with the tribe and other investors in the long-stalled Foxwoods Casino Philadelphia project. That news suggests the tribe's investment won't be for naught and signals that the tribe is open to working with a third-party manager, one source said.

The elimination of the per capita payments will severely affect tribal members, many of whom have no other source of income. It could not be learned Monday how many members are in that situation. The tribe's roughly 450 adult members receive the payments.

"I've heard of tribes whose payments have fluctuated depending on their revenues, but I've never witnessed a tribe eliminate payments when a significant number of members relied on them," said Foley, the Indian gaming consultant. "These things tend to drive tribal elections."

All seven tribal council members signed the July 1 letter informing tribal members that their per capita payments will end in December. Only two of the councilors - Marjorie Colebut-Jackson and Maureen Sebastian - are up for re-election in November.

b.hallenbeck@theday.com