CHOCTAW — Moody’s Investors Service has downgraded $200 million in securities borrowed by the Choctaw Resort Development Enterprise to junk bond status.
That action came two days after the FBI raided the Mississippi Band of Choctaw Indians’ casinos at the Pearl River Resort near Philadelphia, The Clarion-Ledger reported.
The FBI’s investigation may “indicate potential internal control weaknesses and could affect Choctaw’s casino operations in the future,” said the report from Moody’s, which downgraded the bonds from “B3″ to “Caa2,” one of the lowest ratings possible.
FBI agents took both hard drives and documents from the casinos on July 12. Beasley Denson, chief of the tribe, told the newspaper earlier that FBI warrants named Atlanta-based Mercury Gaming Group and its marketing arm, the Titan Agency.
Denson Mercury and raised Mercury CEO Doug Pattison’s pay in February from $60,000 a month to more than $200,000 a month. Denson told The Clarion-Ledger the raise took place because Pattison was helping with the new Bok Homa Casino.
Denson’s challenger, Phyliss J. Anderson, has said she would cancel tribe contracts with Mercury and Titan. She declined, through a spokesperson, to comment July 29, the newspaper said.
“Obviously the bond rating agencies are watching what has now become a drama unfolding,” said Phil Hardwick, coordinator of capacity development for the Stennis Institute of Government.
Denson lost to Anderson earlier this month, 1,971 votes to 1,618. He conceded, but the Tribal Council threw out the results, alleging irregularities, and scheduled a new election Sept. 6.
Denson is paid $466,000 a year as chief; Anderson and other Tribal Council members get $120,000 a year.
Moody’s report said “the recent unresolved change in leadership at the Choctaw Tribe — the owner of the casinos — could further complicate the refinancing process or could impede the Enterprise’s ability to refinance timely or on economical terms.”
The bad news hardly ends there. On Nov. 4, the tribe must pay $71 million. The risk of refinancing that amount “has escalated significantly,” Moody’s wrote.
The service said the bond ratings “could be downgraded further if Moody’s deems that the Choctaws will likely not be able to refinance within the next 30 to 60 days.”
The new low ratings mean the tribe likely will have to look to places besides banks to get refinancing, said Randy Wall, a lawyer for Jackson law firm Watkins Ludlum Winter & Stennis.
In general, it isn’t legal for banks to loan money to cover junk bonds, he said. “Banks have to have investment grade ratings.”
The tribe could possibly borrow money from insurance companies or private parties, he said.
Hardwick said the Nov. 4 deadline should give the tribe time to pay off the $71 million due, “assuming there are no other issues, and assuming they are resolvable. If they don’t resolve the issues, that adds to the perceived risk.”
Even if they do get financing, “they’re going to have to pay a higher interest rate,” he added.