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Mohegan Tribal Gaming Authority -- Moody's assigns Caa1 to Mohegan Tribal Gaming's proposed 2nd lien notes; reviews CFR and unsecured notes for upgrade

·16 min read

Rating Action: Moody's assigns Caa1 to Mohegan Tribal Gaming's proposed 2nd lien notes; reviews CFR and unsecured notes for upgrade

Global Credit Research - 13 Jan 2021

New York, January 13, 2021 -- Moody's Investors Service today assigned a Caa1 rating to Mohegan Tribal Gaming Authority's ("MTGA") proposed $1.175 billion 2nd lien notes due 2026. Moody's also assigned a B1 rating to the company's proposed amended and extended $263 million first lien revolver.

At the same time, MTGA's Caa2 Corporate Family Rating, Caa2-PD Probability of Default Rating, and Ca senior unsecured notes rating were placed on review for upgrade pending completion of the proposed refinancing. MTGA's Speculative Grade Liquidity rating is unchanged at SGL-4 indicating weak liquidity due to MTGA's reliance on external capital to address the October 2021 maturities.

Proceeds from the proposed offerings along with $49 million of cash will be used to refinance MTGA's $232 million term loan A and $814 million term loan B in full at par, along with $55 million of other debt. The proceeds will also be used to repay $100 million of the $197 million of borrowings currently outstanding under the company's existing $250 million revolving credit facility. The $97 million of remaining revolver borrowings outstanding will carry over to the amended and extended revolver. The Caa1 ratings on the existing revolver, term loan A and term loan B are not affected and Moody's expects to withdraw the ratings on those facilities upon completion of the transaction.

The Caa1 assigned to the proposed 2nd lien notes and B1 assigned to the amended and extended revolver are both subject to the transaction being completed as planned and the Corporate Family Rating being raised to Caa1 from Caa2.

The review will focus on MTGA's ability to complete the proposed transaction and the final terms. Upon completion of the deal, Moody's expects to upgrade MTGA's Corporate Family Rating to Caa1, Probability of Default Rating to Caa1-PD, and senior unsecured notes rating to Caa3. Moody's also expects to upgrade MTGA's Speculative Grade Liquidity rating.

On Review for Upgrade:

..Issuer: Mohegan Tribal Gaming Authority

.... Probability of Default Rating, Placed on Review for Possible Upgrade, currently Caa2-PD

.... Corporate Family Rating, Placed on Review for Possible Upgrade, currently Caa2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Upgrade, currently Ca (LGD6)

Assignments:

..Issuer: Mohegan Tribal Gaming Authority

....Senior Secured Revolving Credit Facility, Assigned B1 (LGD1)

....Senior Secured 2nd Lien Regular Bond/Debenture, Assigned Caa1 (LGD6)

Outlook Actions:

..Issuer: Mohegan Tribal Gaming Authority

....Outlook, Changed To Rating Under Review From Negative

RATINGS RATIONALE

Although the transaction will be largely neutral in terms of debt and leverage, the review for upgrade and the expected CFR upgrade to Caa1 reflects that the refinancing will have a meaningful positive impact on MTGA's liquidity in that it will alleviate near-term maturity concerns and eliminate scheduled debt amortization requirements related to the existing term loans. MTGA's existing revolver and term loan A mature this coming October. The company's term loan A amortizes in quarterly installments at a rate of $33.4 million per annum with the balance payable at maturity this October, while its term loan B amortizes in quarterly installments at a rate of $8.7 million per annum with the balance payable at maturity in October 2023.

The completion of the proposed refinancing as currently planned, along with Moody's view that MTGA will continue to generate positive free cash flow after interest, cash distributions and capital expenditures despite the continued challenges related to the coronavirus pandemic, will help the company circumvent a potential default later this year as well as improve the company's ability to manage through the coronavirus challenges and reduce leverage over time.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of MTGA from the current weak US economic activity and a gradual recovery for the coming year. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The gaming sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in MTGA's credit profile, including its exposure to travel disruptions and discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and MTGA remains vulnerable to the outbreak continuing to spread.

Financial policies are aggressive including use of debt to fund development, and regular cash distributions to the Tribe. These factors lead to high leverage and weak free cash flow.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

MTGA's ratings could be upgraded if the company completes the proposed refinancing transaction as planned. Conversely, MTGA's ratings could be downgraded if the company is unable to successfully complete the proposed refinancing. Ratings could also be downgraded if Moody's anticipates renewed weakness in MTGA's earnings or cash flow generation because of competition, actions to contain the spread of the virus including but not limited to renewed facility closings, or reductions in discretionary consumer spending.

MTGA's owns and operates Mohegan Sun, a gaming and entertainment complex in Uncasville, Connecticut, and Mohegan Sun Pocono, a gaming and entertainment facility offering slot machines and harness racing in Plains Township, Pennsylvania. MTGA's restricted group also receives fees for the management of several nonaffiliated casinos. MTGA is owned by the Mohegan Tribe of Indians of Connecticut, a federally recognized Native American tribe. MTGA's restricted group generated net revenue of about $896 million for the fiscal year ended 30-September 2020.

The principal methodology used in these ratings was Gaming Methodology published in October 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1244702. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Keith Foley Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 John E. Puchalla, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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