Mohegan complied with covenants in Q1, has $84 million liquidity

By Paul Deckelman

New York, Jan. 29 - Mohegan Tribal Gaming Authority saw its fiscal 2013 first-quarter operating results fall off from year-earlier levels, hurt by a variety of factors, including a soft regional economy in the northeastern U.S. and increasing competition from rival casinos nearby states. Another factor was increased interest expense following its refinancing transactions last March.

However, the Uncasville, Conn.-based operator of Connecticut's big Mohegan Sun casino resort and a racino operation at Pocono Downs in eastern Pennsylvania managed to stay in compliance with all of the financial covenants under its bank credit facility.

Chief financial officer Mario C. Kontomerkos told analysts on a Tuesday conference call following the release of results for the quarter ended Dec. 31 that the company's total leverage ratio of debt versus EBITDA stood at 6.18 times, well inside the 7.0 times maximum limit allowed under the facility.

That compares with 6.2 times during the 2012 fiscal fourth quarter ended Sept. 30, versus a 7.25 times top limit. A year earlier, in the fiscal first quarter of 2012, total leverage was 5.79 times, versus a top limit of 7.25 times, and in the fiscal 2011 Q1, leverage as 7.03 times versus a permitted 7.25 times.

Mohegan's senior credit facility ratio, excluding all subordinated debt, was 1.5 times, against a covenant maximum of 1.75 times, unchanged from Q4, though down from 3.52 times against a 3.75 times top limit a year earlier and 4.35 times versus a 4.5 times top limit in the 2011 fiscal first quarter.

The ratio of first-lien leverage was 2.35 times, versus the 2.75 times allowed under the covenant, little changed from 2.36 times in the 2012 fiscal fourth quarter.

$84 million liquidity

Kontomerkos noted that total debt at the end of the latest fiscal quarter was $1.7 billion. Debt had stood at $1.71 billion at the end of fiscal 2012 and $1.61 billion in the year-ago 2012 fiscal first quarter.

The CFO said that there were no amounts drawn on the Authority's $75 million revolving credit line as of Dec. 31. After factoring in outstanding letters of credit and restrictive covenants, the Authority had $66.8 million available for borrowing under the credit facility.

Cash and cash equivalents at the end of the quarter totaled $88.2 million, although that was down from $114.1 million at the end of fiscal 2012 and $91.7 million in the year-earlier period.

He said that net of bank roll and restricted cash, the Authority's liquidity at Dec. 31 totaled some $84.2 million.

Interest costs hurt earnings

Earnings were impacted, in part, by higher interest costs following the company's refinancing transactions last March.

At that time, Mohegan entered into a new $475 million credit facility, split into a $400 million term loan and the $75 million revolver, both due in 2015, which replaced a $675 million revolver slated to come due last March. The new facility closed just a few days ahead of the older facility's scheduled expiration.

While downsizing that replacement facility by $200 million, the company also entered into a $225 million last-out, first-loss term loan due 2016, carrying an interest rate of 750 basis points over Libor.

The company also issued three new tranches of mostly higher-interest notes in exchange for mostly older, shorter-dated notes tendered by holders under a roughly concurrent exchange offer.

These included $417.77 million of new 10½% third-lien senior secured notes due 2016 in exchange for $234.225 million of tendered 6 1/8% senior notes due 2013 and $183.546 million of tendered 8% senior subordinated notes due 2012.

The Authority issued $344.19 million of new 11% senior subordinated notes due 2018 in exchange for $203.844 million of tendered 7 1/8% senior subordinated notes due 2014 and $140.346 million of tendered 6 7/8% senior subordinated notes due 2015.

And Mohegan also issued $199.8 million of new 11½% second-lien senior secured notes in exchange for the same amount of tendered 11½% second-lien senior secured notes, both due 2017.

Interest expense accordingly increased by $14.5 million, or 50.2%, to $43.3 million for the latest quarter, versus $28.8 million a year ago, primarily due to a higher weighted average interest rate. Weighted average interest rate was 10.1% for the latest quarter, versus 7.1% in the first quarter of fiscal 2012.

For the quarter ended Dec. 31, net revenues were $324.8 million, a 7.7% decrease from the first quarter of fiscal 2012. Gaming revenues of $289.6 million represented an 8.8% decrease from a year ago.

Adjusted EBITDA was $73.2 million, a 2.4% decrease from a year earlier.

Income from operations was $52.2 million, a 2.5% decrease from a year ago.

And net income attributable to the Authority tumbled to $9.1 million, a 62.1% decrease from the first quarter of fiscal 2012.

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