Mohegan: New refinancing plan provides 'clear runway' to improvement

By Paul Deckelman

New York, Jan. 4 - Mohegan Tribal Gaming Authority reported improved year-over-year quarterly results on Wednesday, and company officials touted a recently announced comprehensive debt refinancing initiative, which they hope will put the Uncasville, Conn.-based Native American gaming concern - operator of the giant Mohegan Sun resort there - on a sounder financial footing.

Back so soon?

"It seems like we were doing this very recently - which, in fact, we were!" chief executive officer Mitchell Grossinger Etess quipped during the conference call with analysts following the release of Mohegan's results for the 2012 fiscal first quarter ended Dec. 31.

Actually, it was exactly four weeks earlier on Jan. 4 that Etess, along with chief financial officer Mario C. Kontomerkos and Bruce S. "Two Dogs" Bozsum, the chairman of the authority's management board and of the Mohegan Native American tribe, which owns the authority and its Connecticut and Pennsylvania casinos, addressed the analysts on their conference call about the results of the 2011 fiscal fourth quarter and full year ended Sept. 30.

Those results had included an ominous-sounding "going concern" warning issued by the authority's independent auditor when it became clear that Mohegan would fail to have a refinancing program in place by the end of the fiscal first quarter and 2011 calendar year to address $811 million of debt scheduled to come due over the next few months. At that time, the executives said Mohegan was making "good progress" in its refinancing talks with the lenders, but they could reveal little else about the process.

Fast forward to Jan. 24, when Mohegan announced its three-part debt refinancing plan.

Under that plan, Mohegan is offering to swap newly issued debt plus cash consent payments for all of its existing bond debt: $250 million of 8% senior subordinated notes scheduled to come due on April 1, $250 million of 6 1/8% senior notes due February 2013, $225 million of 7 1/8% senior subordinated notes due 2014, $150 million of 6 7/8% senior subordinated notes due 2015 and $200 million of 11½% second-lien senior secured notes due 2017. The exchange offer expires on Feb. 22, and the early tender deadline is 5 p.m. ET on Monday.

Concurrently, Mohegan is seeking to amend and restate its credit facility to, among other things, reduce the overall facility size to $475 million from $675 million and extend its maturity date to March 31, 2015 from this coming March 9. The authority envisions the new credit facility including a $200 million revolving credit line and a $275 million term loan.

It also plans to incur $225 million of new first-lien debt prior to the expiration of the bond exchange offer. The authority said this debt could take the form of either first-lien notes, a secured bank credit facility or an unspecified "otherwise." However, the authority was heard to have held a bank meeting on Friday to launch a $225 million last-out, first-loss term loan. According to a bank-loan market source, that borrowing is talked at Libor plus 750 basis points with a 1.5% Libor floor and an original issue discount of 98.

Mohegan said that it would use the proceeds of the new first-lien debt offering to repay a portion of the outstanding principal balance of the bank credit facility and to pay other costs.

Mohegan said that a sizable number of its bondholders have already said they will support the exchange offer. It has entered into agreements with holders of 48.3%, collectively, of the 2012 and 2013 notes, a collective 63.9% of the 2014 and 2015 notes and 58.6% of the 2017 notes. It further said that some of those bondholders have also agreed to purchase the new first-lien debt, subject to certain conditions, at the authority's option.

CEO Etess declared on the conference call that "this strategy is designed to extend the maturity dates of our capital structure to 2015 and beyond, providing us with a clear runway for the expiration of the arrangement payments and allowing sufficient financial flexibility for our operating and diversification strategies."

The arrangement Etess referred to is a 15-year contract, scheduled to expire at the end of 2014, under which the authority pays 5% of its gross Mohegan Sun revenues to a company that helped to finance construction of the resort back in the 1990s and that ran it on a day-to-day basis for the first several years of its operations. Those annual payments to Trading Cove Associates have totaled between $55 million and $61 million in each of the last three fiscal years.

Debt, leverage ratios decline

CFO Kontomerkos said, "We've made significant progress in de-levering the balance sheet over the last year, as total leverage has declined 122 basis points from the prior year's quarter."

Total debt, including capital leases, was $1.61 billion, and amounts drawn on the bank credit facility were $505 million, versus $1.64 billion of total debt and $535 million drawn at the end of the fiscal fourth quarter in September and $1.66 billion of total debt and $543 million drawn at the end of the year-ago fiscal first quarter.

He said that as of the end of the fiscal first quarter, the authority was in compliance with all of its credit facility covenants.

He said that total leverage, as defined under the bank credit facility, was 5.79 times annualized EBITDA against a maximum allowed by its covenants of 6.25 times. At the end of the fiscal fourth quarter, leverage stood at 6 times against a covenant limit then in place of 6.5 times. A year ago, the leverage ratio was 7.03 times against a permissible maximum then in place of 7.25 times.

Senior leverage, excluding all subordinated debt, was 3.52 times against a covenant maximum of 3.75 times. During the previous quarter, it was 3.69 times against a permitted top limit of 4.25 times. A year ago, the ratio was 4.35 times against a maximum ratio then in effect of 4.5 times.

Kontomerkos said that the authority had $62 million available for borrowing under its bank credit facility at the end of the latest quarter, when factoring in all restrictive covenants. That was down from $134 million available the quarter before but up from $35.6 million a year earlier.

Cash and equivalents totaled $91.7 million at the end of the latest quarter versus $112.2 million at the end of the previous quarter and $92.2 million a year ago.

Distributions to the Mohegan tribe totaled $18 million for the quarter and capital expenditures totaled $15.2 million, mainly comprised of maintenance and development capital expenditures at the flagship Mohegan Sun casino in Connecticut.

Mohegan also operates the Pocono Downs harness racing track and casino in eastern Pennsylvania, is developing a third gaming site in western Massachusetts and has announced plans for a potential fourth site in the Catskills region of upstate New York.

Year-over-year improvement

The authority posted net income of $24 million for the fiscal first quarter, an 85.6% increase over the fiscal 2011 first quarter a year ago. Income from operations totaled $53.5 million, a 20.8% increase over a year ago, while adjusted EBITDA was $75 million, a 9.5% year-over-year increase.

It had net revenues of $351.9 million, a 4.8% increase over a year ago, including gaming revenues of $317.5 million, a 3.2% increase.

Non-gaming revenues, including revenue from on-premises restaurants, hotel and meeting rooms and sports and entertainment ticket sales at the Mohegan Sun Arena in Uncasville - though not at the similarly-named arena in Wilkes-Barre, Pa., which the company does not own but merely owns the naming rights to - totaled $60.1 million, a 12.4% increase over the first quarter of fiscal 2011.

Sara Rosenberg contributed to this story

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