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A good deal for the tribe and the region
The $2.2 billion debt-restructuring agreement announced by the Mashantucket Pequots last week is good news not just for its Foxwoods Resort Casino but also for the region and the state, which depend on the facility as an employer of thousands of workers and as a provider of millions of dollars in revenues every year.
While it may be tempting to fault the Mashantuckets for having run up such a huge debt in the course of operating the world's largest casino, the deal represents a significant improvement in fiscal prudence by tribal leaders.
In the past the tribe did not endear itself to bondholders and other lenders by continuing to make generous monthly distributions of casino profits to members even while it faced default in 2009.
In addition, the tribe made such questionable decisions as construction of an expensive but unnecessary Route 2 bypass, and of the MGM Grand at Foxwoods, which some analysts feel competes with rather than complements the original casino.
Scott Butera, Foxwoods' president and chief executive officer, and Rodney Butler, chairman of the Mashantucket Pequot Tribal Council, deserve praise for taking a more responsible approach. In announcing the agreement Mr. Butler noted, "It is fair and consensual, and implementation of the plan will help provide for the long-term financial stability of our tribal community as well as enhance the competitive strength of Foxwoods Resort Casino."
Mr. Butler was elected tribal chairman in 2009 just as casino revenues began slumping; Mr. Butera took over at Foxwoods a year later. While they may not have been able to reverse the revenue dropoffs significantly they have sought to minimize losses by curbing superfluous expenses.
This is the only practical option considering that Foxwoods and neighboring Mohegan Sun, owned and operated by the Mohegan Tribe, face increased competition from Native American and state-run gambling operations throughout the Northeast. A continuing nationwide economic downturn also has cut into casino income.
The Mohegans announced in March that they had refinanced more than $1.6 billion in debt and raised $225 million in new capital, using much of that money to reduce a $675 million line of credit.
Now that the casinos have renegotiated their debts, they can devote more time and energy to providing the first-class entertainment that will be required to continue attracting patrons who now have less disposable income and more gambling options.
Both tribes say their renegotiated debt deals will enable them to proceed with new developments. In the Mashantuckets' case, this includes construction of an outlet mall connecting Foxwoods' Grand Pequot Hotel to MGM Grand.
Such strategies may appear to be "doubling down," a tactic in which a gambler increases a potentially bad wager in hopes of a better payoff.
That may be the case, but it could be years before the tribe learns if it has invested wisely or made a bad bet.
What's more, both debt deals have come at a price. The tribes will have to pay off their loans at higher interest rates and for longer periods.
The new terms, at least, buy them more time.