Thursday, November 19, 2009

Potential Default by Foxwoods Casino Will Test Tribal Sovereignty.

They can promise to pay, but claim sovereignty when the bill comes due.

From the FT.com


A looming default by the Native American tribe that owns the Foxwoods Resort Casino in Connecticut is stirring a debate over whether holders of billions of dollars of tribal debt can pursue their claims as creditors under US laws.

Federally recognised tribes operate as sovereign nations, and hundreds of them have turned to gaming for revenue, financing casino projects with debt including more than $5bn in high-yield bonds, according to Barclays Capital.

The Mashantucket Pequot Tribal Nation, which owns Foxwoods, warned this week that it probably would not make a full interest payment on $500m of notes, which would result in a default on December 16, when a grace period ends.

Smaller tribal casinos have defaulted, but the size of the Foxwoods debt has drawn attention. Analysts are asking whether the tribe will use its special status to take an aggressive stance in dealing with creditors, a development that could affect tribes' access to credit.

"The Mashantucket situation could set a precedent," Moody's Investors Service said. "With casinos such as Foxwoods located on sovereign tribal land potentially out of reach of US bankruptcy law, it remains unclear whether creditors could enforce their rights."

Steven Smith, an attorney at the Dechert law firm, said: "An argument can be made that the tribe is a governmental unit, which could, if determined to be true, bar it from seeking relief under Chapter 11 altogether."
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