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Rating Action:

Moody's upgrades Mohegan Tribal Gaming's CFR to Caa1; stable outlook

29 Jan 2021

Note: On February 11, 2021, the press release was corrected as follows: In the debt list, under Affirmations for Mohegan Tribal Gaming Authority, the LGD for the Senior Secured 2nd Lien Regular Bond/Debenture was changed to “LGD3.” Revised release follows.

New York, January 29, 2021 -- Moody's Investors Service ("Moody's") today upgraded Mohegan Tribal Gaming Authority's ("MTGA") Corporate Family Rating to Caa1 from Caa2 and Probability of Default Rating to Caa1-PD from Caa2-PD. The B1 rating on MTGA's first lien revolver and Caa1 rating on its senior secured second lien notes were affirmed. MTGA's Speculative Grade Liquidity rating was upgraded to SGL-3 from SGL-4.

This action concludes the review for upgrade that was initiated on January 13. The rating outlook is stable.

The upgrade considers that on January 26, MTGA closed on a refinancing that had a meaningful positive impact on the company's liquidity. This, along with Moody's expectation that MTGA will generate about $25 million of positive free cash flow after interest, cash distributions and capital expenditures in fiscal 2021, will improve the company's ability to manage through the coronavirus challenges and reduce its leverage over time.

"The elimination of significant near-term loan amortization requirements and term loan debt maturity allowed MTGA to circumvent a potential default later this year", stated Keith Foley, a Senior Vice President at Moody's.

Going forward, there are no material near-term debt maturities. Pro forma for these transactions as of September 30, 2020, there was less than $100 million drawn on the company's $263 million revolver, the expiration of which was extended 18 months to April 2023 from October 2021. MTGA's senior secured second lien notes that mature in February 2026, and senior unsecured notes that mature in October 2024, have no principal repayment requirement prior to maturity, other than a springing maturity for the senior secured notes if the senior unsecured notes remain outstanding 91 days prior to their maturity date and customary provisions relating to specified asset sales and changes in control.

The upgrade of the Speculative Grade Liquidity rating to SGL-3 from SGL-4 also reflects that the completion of the refinancing improves the company's liquidity by pushing out maturities with only a moderate increase in cash interest, and improves the company's covenant cushion.

The following ratings/assessments are affected by today's action:

Ratings Upgraded:

..Issuer: Mohegan Tribal Gaming Authority

.... Corporate Family Rating, Upgraded to Caa1 from Caa2

.... Probability of Default Rating, Upgraded to Caa1-PD from Caa2-PD

.... Speculative Grade Liquidity Rating, Upgraded to SGL-3 from SGL-4

....GTD Senior Unsecured Global Notes, Upgraded to Caa3 (LGD6) from Ca (LGD6)

Ratings Affirmed:

..Issuer: Mohegan Tribal Gaming Authority

....Senior Secured Revolving Credit Facility due 2023, Affirmed B1 (LGD1)

....Senior Secured 2nd Lien Global Notes, Affirmed Caa1 (LGD3)

Ratings Withdrawn:

..Issuer: Mohegan Tribal Gaming Authority

....Senior Secured 1st Lien Term Loan due 2021, Withdrawn , previously rated Caa1 (LGD3)

....Senior Secured Term Loan B due 2023, Withdrawn , previously rated Caa1 (LGD3)

....Senior Secured Revolving Credit Facility due 2021, Withdrawn , previously rated Caa1 (LGD3)

Outlook Actions:

..Issuer: Mohegan Tribal Gaming Authority

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

MTGA's Caa1 CFR reflects MTGA's high leverage, earnings concentration in a few properties with high competition, and exposure to cyclical volatility. Although Moody's expects the company can reduce debt/EBITDA to about 7x by the end of fiscal 2021, that level of leverage still leaves MTGA with a high degree of financial risk. This risk is compounded by Moody's expectation that there will be continued ongoing operational challenges and earnings and cash flow pressure from efforts to contain the coronavirus, and that there will be a slow recovery to pre-coronavirus volume.

Positive rating considerations include MTGA's high quality, well-established, and large amount of gaming and attractive non-gaming amenities along with its earnings diversification efforts. The company has streamlined costs during the pandemic. Moody's expects certain costs such as marketing will increase as competing forms of entertainment reopen, but that the company will remain cost vigilant to support positive operating cash flow that fund tribal distributions. Diversification efforts outside of MTGA's restricted group structure include management and development fees from unaffiliated casinos in the U.S. along with MTGA's investment in a resort casino project in South Korea, which Moody's views as a long-term positive for the company, despite inherent risks.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of MTGA from the current weak US economic activity and a gradual recovery for the coming year. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The gaming sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in MTGA's credit profile, including its exposure to travel disruptions and discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and MTGA remains vulnerable to the outbreak continuing to spread.

Financial policies are aggressive including use of debt to fund development, and regular cash distributions to the Tribe. These factors lead to high leverage and weak free cash flow.

The stable outlook reflects Moody's view that the company will gradually rebuild volume, increase EBITDA and generate positive free cash flow over the next year as consumers gain comfort with public spaces. The outlook also reflects Moody's expectation that MTGA will maintain adequate liquidity to manage in the uncertain operating environment that is likely to persist over the next year.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A higher rating can be achieved once Moody's has a higher degree of confidence that the risks related to COVID-19 will lessen and the operating environment improves along with revenue and earnings visibility. A higher rating also requires that MTGA generate positive free cash flow and demonstrate the ability and willingness to achieve and maintain debt/EBITDA below 6.0x over the longer-term.

Ratings could be downgraded if Moody's anticipates renewed weakness in MTGA's earnings or cash flow generation because of competition, actions to contain the spread of the virus including but not limited to renewed facility closings, or reductions in discretionary consumer spending.

The principal methodology used in these ratings was Gaming Methodology published in October 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1244702. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

MTGA's owns and operates Mohegan Sun, a gaming and entertainment complex near Uncasville, Connecticut, and Mohegan Sun Pocono, a gaming and entertainment facility offering slot machines and harness racing in Plains Township, Pennsylvania. MTGA's restricted group also receives fees for the management of several nonaffiliated casinos. MTGA is owned by the Mohegan Tribe of Indians of Connecticut, a federally recognized Native American tribe. MTGA's restricted group generated net revenue of about $896 million for the fiscal year ended 30-September 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Keith Foley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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