Moody’s Investors Service downgraded Seneca Gaming Corp. and $500 million of its senior unsecured debt as the casino operator disputes New York state’s claim that it owes $214 million in overdue fees for its gambling business.
Moody’s cut the rating to B1 from Ba2 and said in a note today it’s reviewing the possibility of further cuts. The Seneca Nation American Indian tribe, which operates three casinos in western New York through Seneca Gaming, is withholding payments because it says the state violated an exclusivity agreement by introducing slot machines at racetracks and allowing gaming at private businesses.
The casinos are the “sole source of debt repayment” for Seneca Gaming’s $500 million of notes due in 2012, Moody’s said.
New York Governor David Paterson’s counsel Peter Kiernan sent a letter to Seneca President Barry E. Snyder Sr. on Oct. 6 saying the nation’s failure to remit revenue-sharing payments for the past two years constitutes a breach of contract and that the state is entitled to terminate an eight-year-old gaming compact. Kiernan gave the tribe 14 days to resolve the matter.
The disputed payments aren’t in a restricted account or being held by an independent third party so “there is no formal assurance that the Nation will have or make these funds available if it is determined that as part of any settlement, all or a portion of it has to be paid,” Moody’s analysts Zhenyu Zhao and Kendra Smith wrote.
Seneca Gaming exchanged $200 million of freely tradable, registered 7.25 percent senior notes due in 2012 for similar, privately placed securities in 2006, according to data compiled by Bloomberg. The notes were initially issued on May 23, 2005, according to a regulatory filing.
The debt traded at 10:22 a.m. at 99.25 cents on the dollar to yield 7.77 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
“In the extreme event that a settlement is not reached and the Compact is terminated, SGC’s ability to operate a class III gaming facility would be in jeopardy,” Moody’s said.
The Seneca Nation occupies three New York reservations, including the City of Salamanca, about 60 miles (97 kilometers) south of Buffalo. More than 7,200 people are members of the tribe, according to its website.
Seneca Gaming operates two hotels in addition to the casinos. It employs almost 4,000 people.
-- With assistance from Brendan A. McGrail in New York. Editors: Sharon L. Lynch, Mitchell Martin.