Moody's upgrades Mohegan gaming authority debt
Moody’s Investors Service has upgraded its rating of $1.9 billion in Mohegan Tribal Gaming Authority debt.
In a news release, the credit-rating agency announced Wednesday it was raising MTGA’s Corporate Family Rating one notch to "B2" from "B3" following the completion of authority refinancing efforts. MTGA’s Probability of Default Rating also was elevated one notch, to “B2-PD.”
Moody’s affirmed a “B1” rating on MTGA's new $1.4 billion credit facility and a “B3” rating on the authority’s new senior $500 million unsecured notes. Moody’s said its ratings outlook for MTGA is “stable.”
The authority operates Mohegan Sun in Uncasville and Mohegan Sun Pocono, a racetrack casino in Wilkes-Barre, Pa.
Moody’s began a review of MTGA’s refinancing on Sept. 20.
"The upgrade reflects the positive benefits from the refinancing, including the meaningful extension of MTGA's debt maturity profile along with the reduction in the company's overall cost of debt," Keith Foley, a senior vice president at Moody's, said in the release. "Combined, these two factors improve MTGA's overall financial flexibility and ability to deal with the substantial increase in direct competition coming from the planned 2018 opening of MGM Resorts International's $800 million MGM Springfield casino located in Springfield, Massachusetts, which is just 85 miles away from the Mohegan Sun casino in Uncasville.”
MGM Resorts announced last year that it was increasing its investment in its Springfield casino to $950 million.
The Mohegan Tribe has formed a partnership with the Mashantucket Pequot Tribe, owner of Foxwoods Resort Casino, to pursue a third Connecticut casino in the Hartford area to compete against the Springfield casino.
Moody’s said its “B2” Corporate Family Rating reflected MTGA’s positive free cash flow profile and the stable outlook for the U.S. gaming sector.
“Gaming revenue performance appears to have stabilized in Connecticut, as well as throughout the broader U.S.,” the agency said. “As a result, U.S. regional gaming companies, including MTGA, have experienced the benefits of their lower and more efficient cost structures.”
Moody’s said factors that could affect MTGA’s credit include the Connecticut gaming market’s vulnerability to further competition “and the long-term fundamental challenges to the U.S. gaming industry, including oversupply conditions, cannibalization, and what appears to be a gradual shift in consumer preference away from traditional slot machines.”
Slots revenue accounts for a significant majority of MTGA’s total revenue, Moody’s said.
Nevertheless, Moody’s said it believes the Connecticut casinos’ “gaming revenue performance” has stabilized.
“This, combined with a lower expense structure, has improved MTGA's ability to further reduce leverage in advance of additional and significant direct competition,” Moody’s said. “Rating upside is not likely until MTGA demonstrates the ability to compete with MGM Springfield …”
MTGA generated net revenue of about $1.4 billion during the 12 months that ended June 30, according to Moody’s.
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