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August 21, 2024

S&P lowers casino operator Mashantucket Pequot’s outlook to ‘negative’ amid possible debt restructuring

PHOTO | CONTRIBUTED Foxwoods Resort Casino

A credit rating agency whacked casino operator Mashantucket Pequot Tribe with a negative outlook rating after lowering its issuer credit rating for a term loan to “D” earlier this month.

S&P Global Ratings said it considered Mashantucket’s decision to extend the maturity of a $275 million loan from Feb. 16, 2025 to June 30, 2028 as “tantamount to a default.”

The rating agency said, in an Aug. 7 announcement, that it believes lenders will receive less than they were originally promised without sufficient offsetting compensation.

On Aug. 15, S&P reiterated concerns about the tribe’s debt, but restored the downgraded loan’s previous rating of “CCC.”

“The negative outlook reflects that Mashantucket might consider a restructuring of some of its junior debt in the next 12 months given its sizable 2026 debt maturity and our view that the tribe's capital structure is unsustainable,” S&P said.

S&P noted Mashantucket’s reliance on a single property – Foxwoods Resort Casino – for cash flow, and earnings volatility given high competition among casinos in the Northeast, including Mohegan Sun.

However, S&P said it believes an upgrade is unlikely over the next 12 months unless the tribe addresses upcoming maturities, improves liquidity, generates sufficient operating cash flow to fully cover fixed charges and demonstrates it can reduce leverage to more sustainable levels.

In fiscal 2024, which ends Sept. 30, S&P said it expects  Mashantucket’s revenue to grow 1% to 2%, due to a projected increase in non-gaming revenue from the opening of new amenities. 

Great Wolf Lodge, a new water park resort at Foxwoods, is expected to open in June 2025.

However, total revenue will be offset by declines in gaming revenue amid competition from nearby casinos and internet gaming, according to S&P.

The rating agency expects Mashantucket's 2024 earnings before interest, taxes, depreciation and amortization to decline about 120 to 150 basis points due to pressure on labor and marketing costs.

Mashantucket Chairman Rodney Butler issued the following statement Wednesday:

“The early extension of our term loan was a great accomplishment by our team and provides years of additional stability to our credit facility,” he said. “The subsequent rating downgrade was temporary and was restored almost immediately, and Moody’s made no adjustment to our credit rating. The extension has been viewed positively by our insurers and stakeholders.”
 

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