Mohegan says it's making refinancing progress but provides few details

By Paul Deckelman

New York, Jan. 4 - Mohegan Tribal Gaming Authority said Wednesday that it is making what senior executives termed "very good progress" on efforts to refinance $811 million of debt that comes due within the next several months, but they declined to give any specifics as to what kind of agreement the authority may work out with its lenders.

"We have made good progress with our refinancing efforts and are confident of a successful conclusion," declared Bruce "Two Dogs" Bozsum, the chairman of the gaming authority's management board and of the Mohegan Native American tribe, which owns the authority and the casinos it operates, including the giant Mohegan Sun resort in Uncasville, Conn.

The authority's chief executive officer, Mitchell Grossinger Etess, echoed Bozsum's contention during the company's fiscal fourth-quarter conference call but told the analysts and investors on the call that he could not get into any specifics.

Etess said that the company's advisers on the refinancing, Blackstone Group and Credit Suisse, "remain completely focused on our refinancing efforts, and we are all hopeful that it will all come together very soon."

Banks, vendors backing company

Etess acknowledged Mohegan's inability to refinance the soon-maturing debt by the end of the 2012 fiscal first quarter on Dec. 31 and the resulting "going concern" warning that its outside auditor issued as part of its fiscal 2011 financial statements. That debt consists mostly of Mohegan's $250 million of 8% senior subordinated notes due April 1, 2011 and $535 million of bank facility debt due March 9, 2011.

But the CEO noted that Mohegan had obtained a waiver from its lenders to address that warning, "which we believe reflects the group's continued confidence in and support of Mohegan Tribal Gaming Authority and the Mohegan Tribe." He said that the waiver contained no conditions, but he said he could not say anything else.

During the question-and-answer portion of the conference call that followed the formal presentations by Bozsum, Etess and the authority's chief financial officer, Mario Kontomerkos, Etess told one questioner that none of the vendors whom Mohegan deals with expressed any kind of qualms about the "going concern" warning and none had stopped dealing with the gaming operator.

Kontomerkos called the bank waiver "significant support" for the authority. "I think that our vendors understand [that Mohegan is making progress on the refinancing], and all of our partners understand that as well."

He said that at the end of the fiscal fourth quarter on Sept. 30, Mohegan was in compliance with all of its covenants.

Leverage within requirements

Kontomerkos said that total leverage under the bank credit facility was 6 times, versus a covenant top limit of 6.5 times, and that Mohegan had made "significant progress in de-levering our balance sheet," as evidenced by a total leverage decreasing over the last four quarters from 7.1 times previously.

Meanwhile, senior leverage was 3.69 times against a permitted top limit of 4.25 times.

Total debt at the end of the fiscal fourth quarter and the fiscal year was $1.64 billion, versus $1.59 billion at the end of the fiscal third quarter. Mohegan had $535 million drawn under its revolving credit facility and, factoring in restrictive covenants, $134 million available for borrowing. That contrasts with $479 million drawn at the end of the fiscal third quarter and about $123 million of availability.

A questioner on the call asked about the increase in revolver borrowings in the latest quarter versus the quarter before; Kontomerkos explained that "it was a timing issue. The quarter ended on a Friday, so we just drew on our revolver in anticipation of some increased activity, and that came right back down after the end of the quarter."

He also said that cash and equivalents totaled $112.2 million at the end of the fiscal fourth quarter, up sequentially from $65.7 million the quarter before.

Not worried about new rival

Bozsum said that during the fiscal fourth quarter, the authority posted "excellent operating results," including net income of $46.7 million - a sharp turnaround from the $26.3 million loss in the same quarter a year earlier.

Despite a marginal decrease in revenues from a year earlier to $373.5 million, Mohegan had income from operations of $77 million, well up from $5.3 million a year ago, while adjusted EBITDA rose to $90.5 million from $73.1 million.

Mohegan operates two gaming properties, its flagship casino in southeastern Connecticut and the Pocono Downs harness racing track and casino in eastern Pennsylvania, and is developing a third gaming site in western Massachusetts.

Despite the fact that New York accounts for fully a quarter of the gamblers and other visitors to the Mohegan Sun in Connecticut, Etess appeared unconcerned about the recently opened casino facility at the Aqueduct Racetrack in the New York City borough of Queens, saying Mohegan anticipates its Uncasville gaming revenue will be around flat, even with the increased competition.

Bozsum said that "the extremely positive quarterly results, improving trends and strong patron visitation provides us with a sense of optimism that the economy is slowly but steadily recovering, and consumer discretionary spending, particularly in gaming and entertainment, will continue to improve."

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