It was reported in a matter-of-fact manner. The Mississippi Choctaw Indians had just refinanced debt, taking on a new five-year loan for million with Trustmark National Bank of Jackson, Mississippi.

The deal gives the tribe financial flexibility, Choctaw Chief Phyliss Anderson told the Associated Press.

What made this deal significant wasn’t so much what it did for the Choctaw, as for what it typified: the financial industry and Native American tribes have learned, and are learning, how to balance the interests of lenders with those of the tribes within the sovereign rights of Indian nations.

 
Breaking Bad

What a difference from August 2009.

Then, Mashantucket Pequot Chairman Michael Thomas wrote a letter to tribal members that sent shockwaves along the canyons of Wall Street and wherever lenders to Indian gaming enterprises reside.

At the time, the owners of the giant Foxwoods Casino complex in Connecticut were suffering under the weight of the recession, and the $2.3 billion in debt piled up when times looked good and the prospect of ever-growing gaming revenues seemed eternal.

Of course, Foxwoods’ plight was not unfamiliar. Gaming developers throughout the industry were paying the price for debt they could not afford.

The result was stock market prices that crashed as companies as storied as Las Vegas Sands and MGM Resorts came close, many feared, to collapse.

By March, LVS shares, which had peaked at $133 and no less an expert than Larry Haverty of Gabelli expected to reach $150, fell to $1.38. MGM dropped from $82 to $1.81.

Fortunes disappeared. Bankers, note holders and company executives frantically tried to keep the ships afloat.

In that environment, it was no surprise that Foxwoods faced similar problems. Except for one thing. Foxwoods was not a company. It was an enterprise of a sovereign nation.

The rules that applied to commercial companies—the ability for lenders to collateralize the loans through the properties being financed, for example—did not exist.

Nor did the tribes have flexibility, say, to sell assets to raise cash to apply to debt.

Thus the reaction when Thomas wrote to tribal members that he would draw down on the tribe’s remaining line of credit and put the money in a lock box.

“We will not accept Wall Street mandates for cuts to tribal government… Anyone who puts the interests of consultants, bankers and bond holders ahead of our tribal community will have to answer to me,” he wrote.

As such, he had “introduced a resolution to take our last borrowed dollars and put them in a lock box only to be used for government and incentive.”

In other words, not only was Foxwoods not paying its lenders what it owed; it was borrowing more from them that it wouldn’t necessarily repay.

The reaction was immediate and violent, as lenders to Indian tribes throughout the United States saw that there was no floor below their feet.

Wide-Ranging Impact

Nor was it just commercial interests who were scared. Other tribes throughout the country understood that if Thomas could default with impunity, it would turn off the flow of credit to tribes everywhere, and for all purposes, not just casinos.

The only solution would be to let the courts decide, a prospect that neither side wanted. Lenders feared that courts would say they had no legal rights against a sovereign. Tribes worried the courts would undercut their sovereignty.

Beyond that, the solution would be to pursue a legislative fix, an equally dangerous and unpredictable route in which the ultimate decisions might have more to do with who had the most political influence rather than with sound policy.

The Mashantucket Pequots, in turn shocked by the reaction Thomas’ letter had created, did the sensible thing, hiring a firm that was expert in crisis management.

The tribe then turned on a dime, notifying lenders that debt would have to be restructured, but reassuring them that it would be done through negotiation.

Meanwhile, out west in New Mexico, the Pojoaque Pueblo faced financial problems with its Buffalo Thunder Casino, but a year after the Foxwoods flare-up, managed to come up with a deal with lenders.

Restructure & Revive

It was the start of setting precedents that would make future debt restructurings easier for tribes and lenders.

Since then, tribes and lenders, one after one, have faced the difficult issues of restructuring debt in a way in which neither holds a gun to the head of the other, and both recognize the need to compromise.

Thus, we return to the Choctaw’s recent deal with Trustmark National Bank. Reaching agreements, while never easy, is now the expected end.

That doesn’t mean all of the issues are resolved for all time. One side pushing its case to the end could still set off the unpredictable conclusions handed down by courts or devised and enacted by Congress.

And the Mashantucket still haven’t restructured their debt, and have dramatically reduced and ended distribution to tribal members, according to The Day newspaper of New London, Connecticut.

But the path has been laid out, and a higher, and maybe more stringent, standard is setting the tone and leading to precedents that make it easier for others to follow. And that we might call the discipline of the marketplace.