Bonds, casinos are sure bet for construction financing method
The tribal owner of two Coachella Valley casinos will sell
$230 million in bonds on Tuesday to help finance construction
of a hotel in Rancho Mirage.
The Agua Caliente Band of Cahuilla Indians will also use
the money to pay off $48 million remaining on an existing
bank loan for an older project in Palm Springs, according
to Fitch Ratings, a New York financial-analysis company.
Several Southern California gaming tribes, including the
Morongo, Cabazon and San Manuel bands, have tapped the bond
market in recent years to pay for major projects, because
interest rates and fees can be lower than traditional bank
loans.
"By and large, the tribes are able to raise money,
because their projects have performed as well or better
than expected and have given investors confidence,"
said Robert Gips, an East Coast attorney who specializes
in tribal financing.
Last week, Fitch gave the Agua Caliente issue an A-, reflecting
stability in the tribe's management, "sound financial
margins" and ability to cover its debt.
Investors use bond ratings to determine risk and reward.
Higher ratings usually mean lower risk, but they also mean
investors earn less interest.
Fitch lowered its grade on $19.5 million in existing tribal
bonds from A to A-, however, saying the band will face more
competition in the future if the state allows Agua Caliente
and other nearby tribes to greatly increase their allotment
of slot machines.
After several years of contentious debate, four large Inland
tribes, including Agua Caliente, renegotiated their gaming
compacts with Gov. Schwarzenegger over the summer, only
to have the agreements blocked by the Legislature.
The tribes, which would have been allowed to add 19,500
slot machines between them, will likely bring the measures
back before lawmakers next year.
"What is it going to do in terms of the saturation
in the market?" asked Fitch analyst Megan Neuburger
in a phone interview.
Saturation is measured by the amount of profit each slot
machine nets per day. In Las Vegas, it's about $125. Neuburger
declined to reveal her Coachella Valley number, which includes
eight casinos in a 60-mile radius, but said it at least
twice as high.
Tribal spokeswoman Nancy Conrad said Securities and Exchange
Commission rules discourage bond issuers from talking about
the issue prior to a sale.
The tribe therefore had no comment on the bonds or related
subjects, she said.
Jeff Lamb, vice president for JP Morgan Chase, which is
handling the sale of the bonds for the tribe, declined to
comment for the same reason.
When it opens, probably sometime in early 2008, the 344-room
hotel will stand at least 14 stories above Interstate 10,
at Ramon Road, next to the Agua Caliente Casino.
The tribe will spend about $182 million of the $230 million
bond on the hotel, in addition to $25.9 million of its own
money, according to Fitch. |
