On Tribal Courts and the Navajo Bond Offering

Here is news analysis of the Navajo bond offering (AK previously posted about this last week). An excerpt:

S&P’s Jacob says the Navajo offering is unusual because tribes traditionally have borrowed directly from banks or sold bonds backed by gaming revenue. There are $5.3 billion of Native American bonds outstanding, according to a Bloomberg analysis.

The Navajo bonds will be sold to institutional investors in a private placement as soon as year-end and will include both taxable and tax-exempt debt, says Goe, the bond counsel.

The Navajos intend to seek investors willing to settle disputes in tribal courts, a first for a bond issue, Goe says. Clarkson says the requirement “would be a reaffirmation of the legitimacy of tribal courts – this time from the financial market.”

Yet it may also make the issue harder to sell. Lyle Fitterer, who helps oversee $26 billion of municipal bonds at Wells Capital Management in Menomonee Falls, Wis., says the tribal-court stipulation “is one more hurdle in terms of investing in a deal like this” and could lead to the Navajos paying higher rates.

Mike Lettig, executive vice president for Native American financial services and agriculture at Cleveland’s KeyBank, hopes the Navajo issue will be “a start for tribal governments to enter the public finance markets routinely.”

KeyBank’s KeyBanc Capital Markets unit will handle the placement.

Would love to be a fly on the wall in those discussions about tribal courts. Lenders routinely demand a higher rate from tribes in these deals when the deal involves tribal court jurisdiction. Why? Especially at Navajo, where tribal law is published online, the Navajo Reporter, and in West’s Navajo Nation Code (also online). I am sure the lenders’ discussions about tribal courts will be double-coded; that is, they’ll do everything they can not to offensive, while perhaps being insulting all along.

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