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06 Jun 2003
MOODY'S ASSIGNS B1 TO WATERFORD GAMING'S $150 MIL. SR. NOTE OFFERING; EXISTING RATINGS CONFIRMED; STABLE OUTLOOK
Approximately $150 Million of Debt Securities Affected.
New York, June 06, 2003 -- Moody's Investors Service assigned a B1 rating to Waterford Gaming,
L.L.C.'s (Waterford) and Waterford Gaming Finance
Corp.'s (co-issuers) proposed $150 million
senior notes due 2012, and confirmed Waterford's existing
ratings. The ratings outlook is stable.
The B1 rating considers Waterford's reliance on a single source for its
cash inflows, the Mohegan Tribal Gaming Authority (MTGA; B1
senior implied/stable), operator of the Mohegan Sun casino in Connecticut.
The rating also takes into account that Waterford is not a bankruptcy
remote entity and could potentially be drawn into a bankruptcy or similar
event by its parent, Waterford Group, L.L.C.
Additionally, there is significant recovery risk under a default
Positive ratings consideration is given to the historical and expected
performance of the Mohegan Sun casino, as well as the restrictive
covenants contained in the new senior note indenture that prohibits other
business activities and the incurrence of additional debt, and limits
restricted payments. Additionally, the senior note indenture
includes a cash flow sweep mechanism that should result in a fairly rapid
de-leveraging. Pro forma for the new note offering,
debt/EBITDA will be slightly above 6.1x.
The stable ratings outlook takes into account the favorable demographics
of the Connecticut gaming market as well as a limited amount of competition.
Currently, Foxwoods is Mohegan Sun's only real competitor.
Although the eventual presence of expanded gaming in the Northeastern
U.S. could have some impact on Mohegan Sun, additional
supply is not expected within the next several years.
New rating assigned:
- $150.0 million senior notes 2012 - B1;
Existing ratings confirmed:
- Senior implied at B1;
- Long-term senior unsecured issuer rating at B1;
- Stable ratings outlook.
The B1 rating on Waterford's existing 9.50% $102.3
million senior notes due 2010 will be withdrawn once the transaction closes.
The closing of the new note offering is subject to the successful completion
of the tender offer and consent solicitation for the 9.50%
Proceeds from the new note offering along with available cash on hand
will be used to repurchase the remaining $102.3 million
of the company's 9.50% senior notes, fund an
interest reserve account, and make a $40 million distribution
to the company's parent, Waterford Group. The distribution
effectively monetizes a portion of Waterford's interest in the performance
of the Mohegan Sun. The distribution follows the successful completion
of Mohegan Sun's expansion as well as increased evidence of weakened support
for additional Connecticut based gaming operations. Connecticut's
Governor Rowland recently signed a bill that repeals the state's Las Vegas
Nights legislation and prohibits all gaming in the state except for Foxwoods
and Mohegan Sun.
The new senior notes will have similar terms to the company's existing
9.50% senior notes. The new notes will be senior
unsecured obligations except that they will be partially secured by an
interest reserve account equal to one semi-annual interest payment.
The notes will not be registered and the company does not intend to make
an exchange offer in the future. However, the note indenture
does require that Waterford disclose its annual and quarterly financial
Waterford Gaming L.L.C. holds a 50% partnership
interest in Trading Cove Associates (TCA), a Connecticut general
partnership. Waterford derives substantially all revenues from
its partnership interest. TCA receives a revenue-based quarterly
relinquishment fee equal to 5% of the gross-revenues of
the Mohegan Sun casino. The Mohegan Sun casino is owned and operated
by the Mohegan Tribal Gaming Authority (MTGA), an instrumentality
established by the Mohegan Tribe of Indians of Connecticut, with
the exclusive power to operate the Mohegan Sun casino. These fee
payments are the only source of cash used to service the Waterford's
outstanding debt. Fifty percent of this relinquishment fee is senior
and ranks pari passu with MTGA's senior unsecured debt. The remaining
50% of the fee is subordinated and ranks pari passu with MTGA's
subordinated debt. At Mar. 31, 2003, the senior
portion of the relinquishment fee would have been junior to about $220
million of MTGA's senior secured debt. The subordinated portion
of relinquishment fee would have been behind $421 million of senior
Since Waterford is a half partner in TCA, Waterford does not have
the authority to cause TCA to make any distributions to Waterford.
Consequently, should Waterford and its partner Kerzner Investments
encounter unforeseen disputes, Kerzner Investments could prevent
or delay distributions of cash to Waterford, jeopardizing the debt
service payments of the notes. At the same time, note holders'
ability to recover assets in a stress case scenario is highly uncertain.
In the event of a default by the MTGA on its debt obligations, the
potential exists for MTGA to reject the relinquishment fee agreement with
TCA, leaving TCA with an unsecured claim against MTGA. Since
only the Mohegan Tribe has the authority to operate the casino,
recovery value to note holders could be significantly diminished.
In addition, although the Mohegan Tribe has waived sovereign immunity,
it is unclear whether this waiver would be upheld. Due to this
legal uncertainty, at the least, creditors' ability to recover
could be delayed.
Waterford recently restated its financial statements for each of the fiscal
years 1996 through 2002. Waterford accounts for its investment
in TCA under the equity method. The restatement is the result of
a change by TCA in the way it has historically recorded certain contractual
liabilities to its partners and their affiliates, recognized certain
revenue, and classified certain distributions to its partners.
The restatement does not change the amounts paid to Waterford by TCA.
The restatement also does not change cash flow from operating, investing
or financing activities that has been available for paying interest,
principal and premium on Waterford's debt obligations.
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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