Mohegan Tribal eyes debt cuts; low leverage stems from new fee income

By Devika Patel

Knoxville, Tenn., Nov. 22 – Mohegan Tribal Gaming Authority plans to continue cutting its debt through amortization under its credit facilities and management expects the authority’s additional incremental fee income from the last quarter will continue to drive down its leverage ratio, which is already one of the lowest in the industry.

“We are aggressively reducing debt through both mandatory and voluntary amortization under our new credit facilities,” chief financial officer Mario Kontomerkos said on the company’s fourth quarter earnings call on Tuesday.

“Our balance sheet continued to improve, again, in the September quarter.

“Our total leverage ratio, calculated on a gross basis, was 4.72 times, representing another sequential decline from the previous quarter and also one of the lowest ratios for major companies in the domestic gaming industry.”

Kontomerkos said the low leverage ratio was driven in large part by the significant new fee income recorded in the fiscal fourth quarter and the fiscal year, which the company expects will result in additional annualized income of over $25 million over the next few quarters.

“We expect this incremental fee income, along with any additional margin enhancement opportunity at our operating properties to continue to drive continued improvement in our credit metrics and further debt reduction, allowing us to reach our goal to drive total leverage into the threes by the end of next year or earlier.”

Kontomerkos also said that the company’s recent debt refinancing, executed after the end of the fiscal year, resulted in a new weighted average coupon of 5.94%, a 122 basis point reduction from 7.16% previously.

Annual interest expense will be cut by approximately $16.5 million.

“In addition, all of our maturities have been extended, with the earliest maturity now at 2021 and extending out to 2024,” Kontomerkos said.

“As a result of this, both Moody’s and Standard & Poor’s upgraded our credit ratings.”

Debt refinancing

On Sept. 19, Mohegan Tribal Gaming Authority said it would use proceeds from a $500 million issue of 7 7/8% eight-year senior notes (B3/CCC+), which priced at 99.271 to yield 8% on Sept. 29, as part of the $1.7 billion of debt financing for its tender offer for its 9¾% senior notes due 2021 and 11% senior subordinated notes due 2018.

In the tender, on Oct. 14, the authority prepaid its floating-rate notes due 2017 and said it would redeem all of the 9¾% senior notes due 2021 and 11% senior subordinated notes due 2018 that remain outstanding after its tender offer on Nov. 14.

Holders had tendered $566,087,000, or 96.77%, of the 9¾% notes and $99,768,000, or 99.58%, of the 11% notes as of 5 p.m. ET on Oct. 13.

The tender offer began Sept. 19 and continued until midnight ET on Oct. 17.

The authority paid 107.875% of par for the 9¾% notes and 100.65% of par for the 11% notes tendered by the early tender date, which includes a 3% early tender premium, plus accrued interest.

The floating-rate notes were issued in a $100 million private placement in November 2015 and carried an interest rate of Libor plus 445 basis points.

The debt financing also included a $935 million seven-year term loan B that launched on Sept. 20 with price talk of Libor plus 450 basis points with a 1% Libor floor and an original issue discount of 99.

The term loan B has 101 soft call protection for six months.

The company’s $1.4 billion senior secured credit facility (B) also includes a $170 million five-year revolver and a $295 million five-year term loan A.

Bank of America Merrill Lynch, Citizens Bank, Credit Suisse Securities (USA) LLC, SunTrust Robinson Humphrey Inc., Goldman Sachs Bank USA, KeyBanc Capital Markets and CIT Bank were the leads on the deal, with Bank of America the left lead on the term loan B and Citizens the left lead on the pro rata debt.

Proceeds were used to repay and terminate some existing debt, including an existing credit facility.

Highlights

Total debt under the bank credit facility was $1.68 billion at the end of the fiscal year, up $45 million from the prior year.

The company’s liquidity was $91.6 million.

As of Sept. 30, the authority held cash and cash equivalents of $83.7 million, including about $7.1 million of excess cash, compared to cash and cash equivalents of $65.8 million as of Sept. 30, 2015. As of Sept. 30, $13 million was drawn on the authority’s $100 million revolving credit facility, while no amounts were drawn on the authority’s $16.5 million line of credit. As of Sept. 30, letters of credit issued under the revolving credit facility totaled $2.5 million, of which no amounts were drawn.

Inclusive of letters of credit, which reduce borrowing availability under the revolving credit facility, the authority had approximately $84.5 million of borrowing capacity under its revolving credit facility and line of credit as of Sept. 30.

The authority is an Uncasville, Conn.-based operator of gaming and entertainment enterprises and an instrumentality of the Mohegan Tribe of Indians.

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