While credit-rating agencies generally approve of Mohegan Gaming & Entertainment’s current finances, the outlook for the Mohegans’ partner in the East Windsor casino project, the Mashantucket Pequot Tribe, isn’t quite as rosy.

Moody’s Investors Service issued a “credit opinion” recently in which it favorably reviewed Mohegan Gaming's debt. Referring to Mohegan Sun’s parent by its former name, Mohegan Tribal Gaming Authority, Moody’s linked “MTGA’s stable rating outlook” to “our view that gaming revenue performance will continue to be stable in Connecticut.”

The agency noted that MTGA has been experiencing positive cash flow in recent months, enabling the company to reduce its indebtedness. The ratio of MTGA’s debt to EBITDA — earnings before fixed costs — over the 12 months that ended June 30, 2017, fell from 5.6 times to 5.3 times.

“With positive free cash flow expected to continue, debt/EBITDA should improve further,” Moody’s said.

The Mashantuckets, owners of Foxwoods Resort Casino, defaulted on more than $2.2 billion of debt in 2009, reached a $1.7 billion debt-restructuring agreement with lenders in 2013 and failed to meet the terms of that agreement in 2014. Since then, the tribe’s been operating under a forbearance agreement that offers it some protection from senior lenders who can, if necessary, block payments to more junior lenders.

Asked about the status of the agreement, which is set to expire Dec. 31, the Mashantuckets issued a statement Thursday.

“We are in the process of our annual extension, which coincides with our year end audit, and we are confident of an extension prior to the expiration of the forbearance agreement,” said Lori Potter, the tribe’s director of communications.

Colin Mansfield, a gaming analyst with Fitch Ratings, another credit-rating agency, said it’s hard to predict the outcome of the Mashantuckets’ forbearance. He noted that while the tribe has been paying principal and interest on bank loans, it has at times lacked the cash flow to make interest payments on some classes of notes. As of June 30, the Mashantuckets’ debt-to-earnings ratio was 12.5 times, he said, more than twice that of the Mohegans’.

Next year, a $123 million bank loan comes due.

With MGM Resorts International, the Las Vegas-based operator, expected to open a nearly $1 billion resort casino in Springfield, Mass., in September 2018, “It’s a difficult time to be facing maturities,” Mansfield said.

In a June 27 credit opinion, its most recent comment on the Mashantuckets’ debt, Moody’s analysts said they believe the tribe ultimately will have to go through another debt-restructuring.

'A big question'

The tribes haven’t publicly discussed how they intend to finance the East Windsor casino, an estimated $300 million project, including the extent to which each will sink equity into the project, how much capital investment they’ll seek from lenders and whether the facility’s own cash flow will be tapped to help pay it off.

"How much cash will they need to raise?” Mansfield said. "That's always been a big question for us." 

He attributed the Mohegans’ more favorable financial situation to their success in paying off debt, an approach made possible by Mohegan Sun’s robust cash flow and other revenue streams — the tribe owns a Pennsylvania casino and derives fees from partnerships with casinos in New Jersey and Washington state, as well as a South Korea project.

“They had some large maturities due but had the opportunity to refinance them about a year ago. They’re not a concern anymore,” Mansfield said.

In last week’s credit opinion, Moody’s analysts said the agency's “B2” rating on MTGA’s debt could be upgraded if the company “demonstrates the ability to compete with MGM Springfield as well as achieve and maintain debt/EBITDA below 4.0 times.” MTGA’s ratings could be lowered, they said, if it appears the company will be unable to reduce its leverage to 4.5 times or below by the time MGM Springfield opens.

“We expect MTGA can generate about $70 million to $90 million of annual cash flow after all debt service, capital expenditures, and dividends,” Moody’s said. “This, combined with no debt maturities during the next three years will afford MTGA the opportunity to further repay debt in anticipation of new competition coming online.”

Analysts are curious about how the two tribes, competitors in southeastern Connecticut, will market a joint venture in East Windsor that’s bound to divert some business from Foxwoods and Mohegan Sun.

“That’s what we scratch our heads about the most,” Mansfield said.

b.hallenbeck@theday.com