The business arm of the Dry Creek Rancheria Band of Pomo Indians notified investors Wednesday that it will default on millions of dollars in bonds used to build River Rock Casino near Geyserville.
The River Rock Entertainment Authority announced it will not be making the May interest payment due Saturday on two outstanding notes, automatically triggering a default on the bonds.
The tribe emphasized the Alexander Valley casino will remain open for business. But it remains to be seen how the default may impact investors and tribal members who receive payments from the casino's profits.
"Although the scheduled interest payment will not be made, we want to assure our customers, vendors and employees that we are generating sufficient funds to operate our business and provide the excellent customer service that our patrons expect," David Fendrick, the casino's CEO and general manager, said in a statement.
The default comes just six months after the opening of a rival casino in Rohnert Park, which has cut into River Rock's revenues and drawn away gamblers that once flocked to the Alexander Valley casino.
"Our immediate focus is identifying cost savings opportunities to adjust to the challenges of our new competitive environment," Fendrick said.
The tribe also has brought in consultants to help analyze the casino's marketing efforts, Dry Creek Tribal Chairman Harvey Hopkins said Wednesday. Tribal leaders are "looking at all options," he said in a brief interview.
"We've been constantly meeting with management of the casino, attorneys and financial advisors," Hopkins said. "It's been a long road to get here."
The River Rock Entertainment Authority, an unincorporated governmental arm of the tribe, on May 1 announced that it had failed to make the scheduled interest payment for the month. The authority said it would use a 30-day grace period to reduce costs and to have what Fendrick then characterized as "significant dialogue with our bondholders."
River Rock opened in 2002 as Sonoma County's first tribal casino. To finance construction, the tribe sold $200 million in senior notes to investors at 9.75 percent interest.
In 2011, the tribe restructured the debt after two rating agencies warned that the business otherwise faced a high risk of default. About $50 million of that debt since has been repaid, Hopkins said in March.
But Hopkins also acknowledged that River Rock's revenues had declined by more than 30 percent since the the Graton Resort - Casino opened in Rohnert Park in November. The new casino is closer to Bay Area gamblers and contains roughly five times the space of the 61,000-square-foot River Rock facility.
As a result of the drop in revenues, the Dry Creek tribe has cut per capita payments to its 640 members over the age of 18, Hopkins said in March. In total, the tribe has nearly 1,040 members.
On Saturday, the tribe will default on two bonds: its 9 percent Series A Senior Notes and its 8 percent Series B Tax-Exempt Senior Notes, both due in 2018.
The tribe's announcement did not disclose the size of the interest payment that is due Saturday or the amount of outstanding debt it owes to bondholders.
The default will trigger a "waterfall agreement" that dictates the use of the authority's cash flow, according to the announcement.
Analysts who follow the Indian gaming market have noted that creditors of tribal casinos can't seize assets as might be done under a normal loan default. Instead, they suggested that River Rock may once more seek to restructure its debt, possibly by winning concessions from creditors in regard to the repayment of both principal and interest.
A bondholder on Wednesday seemed to take the default in stride.
"I'm not happy about it," said Mike Hudson, an Indiana man who has owned River Rock bonds for more than five years. "There are many options on the table. This is just the beginning of the next chapter. It's not gloom and doom. "
Hudson said that by missing the interest payment, the tribe will be subject to having the casino revenues overseen by a trustee for the bondholders.
"Instead of a democracy, it will be more of a dictatorship," Hudson said. "A professional manager will come and manage the way they see best for the benefit of creditors, not the tribe. Essentially, they've conceded control of the casino."
"It will probably work out. Most of these things usually do," he concluded.
The River Rock Entertainment Authority has retained the law firm Holland - Knight LLP as its legal advisor and will use Stuyvesant Square Advisors, Inc. as its financial advisor.
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