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Oct. 30, 2020

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Cowlitz casino project gets riskier rating

Moody's says B3 rating is typical for construction of a new Indian casino

By , Columbian Business Editor
Published:

Moody’s Investor Service on Thursday assigned a B3 Corporate Family Rating to the Cowlitz Tribal Gaming Authority’s $485 million financing for its casino west of La Center, a cautionary rating that takes into account potential risks involved in debt-financed casino projects by Native American tribal organizations.

The credit rating helps determine the interest rate the tribe will have to pay in order to borrow money to fund construction and start-up costs. “Obligations rated B are considered speculative and are subject to high credit risk,” according to Moody’s.

Moody’s said the B3 rating is typical for construction of a new casino, in this case reflecting “the ramp-up risk and single asset profile of the Cowlitz (tribe).” Moody’s said it also took into account as “risks common to Native American gaming issuers, including the uncertainty as to enforceability of lender’s claims in bankruptcy or liquidation.”

The ratings service noted that the casino would be the closest casino to the Portland metropolitan area and one of only two within 100 miles of the metro region. But it said that several casinos are located within a 150-mile distance from Portland, an area it considers as the Cowlitz casino’s secondary market.

Cowlitz Tribal Gaming Authority, an entity owned by the Cowlitz Indian Tribe, has already begun site improvement work on a casino-resort with a hotel and shopping center on the tribe’s new 152-acre reservation, just west of Exit 16 on Interstate 5 outside the La Center city limits. An official groundbreaking is set for early next year, tribe Chairman Bill Iyall said Friday.

Securing the investment ratings for financing “is just part of the process,” Iyall said. With the B3 rating, he said, “We know we’re at a little bit of a disadvantage but that’s where it’s at. … We’re feeling comfortable with the project and with the ratings.”

Cowlitz Tribal Gaming Authority has entered into a development agreement and management agreement with Salishan-Mohegan LLC, a subsidiary of the Mohegan Tribal Gaming Authority to develop and manage the casino.

The Moody’s rating will apply to $485 million in financing. That includes a $330 million five-year term loan; an $80 million five-year delayed draw loan; and a $75 million, 56-month revolving line of credit. Another $40 million in credit could be used for furniture, fixtures, and equipment, Moody’s said. The Cowlitz developers could use money from these sources to repay a $66 million developer loan, Moody’s said.

The rating service said that it expects to raise its credit rating to B2 if the casino meets expected profit margins once casino operations are underway. Ratings could be lowered if the project experiences significant cost overruns or construction delays, Moody’s said.

The federal government officially recognized the Cowlitz Indian Tribe in 2000, and in 2010 the Bureau of Indian Affairs approved an application to take 152 acres of land into trust for a new Cowlitz reservation.

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