On July 1—four years after the first of several loan covenant defaults suggested it was in serious financial trouble— Foxwoods Resort Casino announced it had sealed a deal that allows it to shed roughly $550 million of its $2.3 billion debt load, push back its deadlines for repaying the rest, and ensure that the 7,000 slot machines that help it attract up to 3 million jackpot-seekers a year keep spinning well into the future.
For Weil, Gotshal & Manges, which helped craft the agreement as the Mashantucket Pequot Tribal Nation's lead restructuring counsel, the announcement capped an assignment that lead partner Andrew Yoon describes as among the most challenging of his career.
"The complexity of the restructuring was unprecedented and required a true team effort," says Yoon, noting that Weil lawyers with expertise in banking, capital markets, restructuring, securities litigation, Indian law, and tax matters all played roles in the matter. (How much Weil and the other firms that hammered out the deal earned along the way is unclear. Unlike a typical court-supervised bankruptcy, the attorney fees generated by the assignment have not been made public, though the tribe agreed to cover its creditors' legal bills in addition to its own.)
The Foxwoods restructuring appears to be the largest-ever debt deal involving an Indian gaming entity, topping last year's $1.6 billion refinancing by Connecticut's other tribally owned casino, Mohegan Sun. And, as happens whenever a financially strapped Indian-owned gambling business is involved, the negotiations were complicated by the ways in which tribal sovereignty collides with federal and state laws to leave creditors with less leverage than in the usual bankruptcy.
In this instance, Weil helped Foxwoods overcome one of those handicaps—a ban on the installation of nontribal management—by agreeing to give the casino's lowest-priority creditors notes entitling them to a cut of future profits based on the casino's performance. In exchange for this so-called contingent interests provision, the creditors in question agreed to write off a big chunk of the debt they are owed. Says Yoon: "It's the first time we've done something like that."
For Foxwoods, the path to the July 1 announcement started with a massive expansion that launched in 2005 and created the MGM Grand at Foxwoods. By the time the project was complete, the Pequots were saddled with five distinct tranches of debt held by a bevy of creditors whose contractual protections and tolerance for loss varied widely.
The Pequots turned to Weil after Moody's began downgrading the casino-related debt in 2008 and early 2009. The tribe originally considered seeking Chapter 11 protection, participants in the restructuring negotiations say, though the federal courts have yet to directly address whether an Indian nation is eligible to make such a move. The attraction of a Chapter 11 filing was that it would have given the tribe access to useful bankruptcy code tools, including so-called cram-down provisions that prevent a minority of creditors from derailing a debtor's reorganization plan. Negotiating outside of bankruptcy, on the other hand, would force Foxwoods to obtain virtually total support for any such plan. Ultimately, the tribe concluded that the potentially precedent-setting nature of a Chapter 11 filing and the likely opposition of at least some creditors made bankruptcy an unappetizing option.
With that question resolved, Weil's next task was to reach a deal with the tribe's senior-most lenders under which those creditors would agree not to act on Foxwoods's default. That agreement, signed in October 2009, had to be extended 13 times over the ensuing four years, according to deal participants. The firm then approached ad hoc committees of three classes of junior noteholders about exchanging their debt for new notes. The negotiations on that front lasted until August 2012, when a term sheet was signed. The documentation related to the contingent-interest provision was then sent to the National Indian Gaming Commission, which enforces Indian gaming laws and issued a formal finding that the provision did not constitute a management contract. The exchange offer was launched in February and closed on July 1.
Each of the relevant creditor groups—two classes of senior lenders; a class made up of monoline insurers and uninsured bondholders; a class of tax-exempt bondholders; and the junior noteholders—hired its own advisers for the negotiations, with roughly 100 lawyers and financial consultants eventually taking part. At Weil, Yoon worked closely with a handful of colleagues that included partners Stephen Karotkin and Ronit Berkovitch, both of whom provided bankruptcy advice, and Todd Chandler, who weighed in on capital markets issues. (All told, about 15 Weil partners played significant roles in the matter.) The Pequot nation also tapped Indian law counsel Rob Gips, a special counsel on Indian affairs at the Portland, Maine, office of Drummond Woodsun.
In the end, Yoon and his team spent most of their time negotiating with the two lender classes at the bottom of the creditor pile that between them agreed to take the $550 million loss: the tax-exempt investors, who agreed to having the original face value of their notes cut by 29 percent, and the junior noteholders, who accepted a 69 percent reduction in the face value of their notes, according to advisers on the deal. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo partner Ann-Ellen Hornidge, a distressed debt expert, represented the former group; Bracewell & Giuliani partner Kurt Mayr represented the latter group.
According to one participant, those two classes "would likely have been wiped out entirely" under a traditional bankruptcy, in which the senior lenders could have pushed through a restructuring plan that excluded them. As it stands, they are in line to recoup more money in the future thanks to the contingent-interest arrangement.
The tribe's senior lenders, a group that collectively holds roughly $600 million worth of secured loans, will see their total investment repaid under the deal. One of those lenders, Malaysia's Kien Huat Realty, which provided the original loans for the casino's bailout, relied on Cleary Gottlieb Steen & Hamilton partner Steven Horowitz during the negotiations. The second senior lender class,, a group led by Bank of America, tapped Davis Polk & Wardwell partners Brian Resnick and Marshall Huebner for restructuring-related advice and firm partners Waide Warner and Sartaj Gill for counsel on credit issues. Bank of America was also advised on Indian law matters by Sheppard Mullin Richter & Hampton partner Christine Swanick.
The July 1 agreement's terms call for the monoline insurers, which covered the face value of certain bonds tapped by the Pequot nation, to be fully repaid in exchange for agreeing to extend the maturity dates on their notes by 13 years. The monolines were advised by Bingham McCutchen restructuring cohead Michael Reilly, while Akin, Gump, Strauss, Hauer & Feld financial restructuring practice leader Fred Hodara represented a group of uninsured noteholders in the same class.
Though Yoon won't say if Weil is handling other Indian casino matters, there is likely be more such work for some work to snap up in the not-too-distant future. Moody's downgraded its ratings on several Indian-owned casino bonds earlier this year, issuing a "probability of default" rating on $200 million worth of notes tied to a Sacramento casino operated by the Buena Vista band of the Me-Wuk Indian tribe and a similar warning on $300 million in notes connected to a Washington State casino operated by the Snoqualmie Tribe.