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Moody's fails to upgrade Mohegan debt

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Despite the Mohegan Tribal Gaming Authority's recent report of positive financial results, Moody's Investors Service announced Thursday it still has doubts about the authority's ability to refinance its debt.

The ratings service said it was keeping the authority's "corporate family" and probability-of-default ratings at Caa3, meaning it considers the authority at substantial risk of default. Moody's had assigned the ratings in a downgrade last May, at which time it also assigned all of the authority's long-term debt a "negative" outlook.

In a press release and filings with the U.S. Securities and Exchange Commission, the authority announced last week that its earnings for the quarter and fiscal year that ended Sept. 30 showed substantial year-over-year gains. The authority's EBITDA (earnings before interest, income taxes, depreciation and amortization) for the quarter totaled $90.5 million, a 23.8 percent increase. The authority also said a bank group had granted it a waiver from an auditors' opinion that its failure to refinance debt raised doubts about its "ability to continue as a going concern."

Authority officials were not surprised by the Moody's announcement, according to Mitchell Etess, the authority's chief executive officer.

"We would not have anticipated any change in our rating despite what a great quarter it was until after a resolution of the debt refinancing," Etess said.

Moody's said the authority's recent results have little to do with its ability to refinance "in a manner that avoids some impairment to existing creditors." The ratings service said the authority faces a "wall of debt maturities" early this year. A $675 million "revolver," or line of credit, on which $505 million is currently outstanding, expires March 9, and $250 million in 8 percent senior subordinated notes come due April 1.

Moody's also noted the authority has about $21 million of scheduled interest payments due Feb 15.

"As of September 30, 2011, the company had the cash resources to make these interest payments," Moody's said. "However MTGA's decision to make these payments may depend on its refinancing discussions and what the company believes will be the likely outcomes. In our opinion, there is a possibility that the company may choose not to make these payments in order to preserve liquidity."

Authority officials would not comment on the specifics of refinancing talks during a conference call Wednesday with investors and gaming industry analysts. The authority operates Mohegan Sun in Uncasville and Mohegan Sun at Pocono Downs in Wilkes-Barre, Pa.


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