Standards and Poor’s

LTBB Credit Rating Dips

Matthew L.M. Fletcher

From the Petoskey News-Review (H/T Junior; also Indianz):

Standard & Poor’s — an independent global provider of credit ratings — has reduced the Little Traverse Bay Bands of Odawa Indians’ credit rating twice in one week.

Following the tribe’s Aug. 11 announcement that it was attempting to re-negotiate the payment of its $122 million in senior unsecured notes — which were originally issued in 2006 to support the construction of the Odawa Casino Resort — and would therefore be suspending its $6.3 million in interest payments due Aug. 17 to its holders; Standard & Poor’s issued a statement Aug. 12, that it would immediately reduce the tribe’s credit rating from ‘CCC’ to ‘CC’ with a negative outlook.

According to Standard & Poor’s credit rating definitions, available on their Web site — www.standardandpoors.com— a ‘CCC’ credit rating means that a company is currently vulnerable, and ‘CC’ means the company is highly vulnerable.

In its Aug. 12 release, Standard & Poor’s also stated that once the tribe missed its interest payment on Monday, Aug. 17, that its credit rating would be reduced to ‘D,’ which means the company has failed to pay one or more of its financial obligations, and that the global credit-rating provider believes the tribe will fail to pay all, or substantially all of its obligations as they come due.

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A Hidden Cost of Tribal Per Capita Payments?

Matthew L.M. Fletcher

Standards and Poor’s lowered the credit rating of the Mashantucket Pequot Nation (H/T Indianz), making this statement:

The ‘BB-‘ rating reflects the Tribe’s high debt leverage, limited geographic diversity, and significant historical and expected distributions to Tribal members. These factors are partially tempered by the favorable demographics of the Connecticut market and limited new competition expected over the next two to three years.

Here are the factors that contribute to the higher cost of tribal credit: (1) high debt; (2) limited geographic diversity; and (3) high per caps. The first two can’t really be helped, but the per caps can be limited. Indian tribes should seriously consider limited or eliminating per caps. At least until the economy comes back.