CHICAGO--(BUSINESS WIRE)--Fitch sees little room for a rapid increase in Native American gaming investment in 2012, even as federal regulatory changes make it easier for tribes to gain approval for off-reservation expansion.
Revenue and cash flow trends for most tribal gaming operators have stabilized in 2011, after growth came to a standstill during the recession. However, regional economic weakness and the still-sluggish labor and housing markets continue to limit growth opportunities. This has been evident in key tribal gaming markets such as Southern California and Connecticut, where competitive supply pressures have also delayed recovery in revenues and margins.
Despite persistent operating headwinds, the regulatory environment for tribes seeking to establish or expand gaming operations has improved since 2009 as the Department of Interior (DOI) has expedited reviews of tribes' applications to place land into trust for off-reservation gaming expansion. The DOI in 2011 reversed an earlier ruling (the so-called "commutability" memo), which had enforced a strict limit on the distance between the reservation and proposed off-reservation casino sites.
Separately, the DOI has potentially established an administrative fix to a problem created by the Supreme Court's 2009 Carcieri decision, which limited the government's ability to place land into trust for tribes not under federal jurisdiction at the time the Indian Reorganization Act (IRA) was passed in 1934. The DOI's interpretation of the ruling led it to take land into trust for the benefit of Oregon's Cowlitz Tribe, which was not federally recognized until 2000.
While the Obama administration has generally taken a softer line on tribal gaming growth and off-reservation development, significant hurdles remain in Washington, and there is no certainty that the current regulatory approach will continue after the 2012 elections.
Capital market access will remain a challenge in the wake of several defaults since 2009 that have cut into investor appetite for tribal gaming bonds. Two recent defaults, involving the River Rock and Chukchansi Gold casinos in California, have led to quick restructuring agreements between tribes and creditors. In both cases, existing bondholders agreed to exchange terms that provided the tribal operators with sufficient cash flow to avoid a lengthy and costly restructuring process.
We see the potential for a small number of Greenfield gaming projects to move forward over the next year, including plans by the Shinnecock Nation in Long Island, NY, Mashpee Wampanoag Tribe in southeast Massachusetts, as well as the Cowlitz Tribe near Portland, OR, Enterprise Rancheria of Maidu Indians in northern California, and North Fork Rancheria of Mono Indians near Fresno, CA.
Due to remaining regulatory and legal roadblocks facing these tribes, exact timing is difficult to handicap, and it is possible that start dates could drag into 2013 or beyond. We expect that these projects will likely obtain required funding, although at steep rates, with some requiring equity-like contributions from private investors or commercial operators.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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