A California Native American tribe has borrowed $140 million to finance its ambitious plans for its casino business.
The Agua Caliente Band of Cahuilla Indians will use $90 million to build a spacious casino in Palm Springs, which will replace the tribe's temporary casino located across the street. The tribe will use the remaining funds to pay off loans for its casino in Rancho Mirage that opened in 2001.
Agua Caliente is the only California Native American tribe that operates two casinos. The tribe borrowed the money from a consortium of banks, including Bank One, National City Bank, Bank of America and CIT Bank.
The tribe was advised by Century City partner Ken Goldman of Reed Smith Crosby Heafey. The bank counsel is Townsend Hyatt of Orrick, Herrington & Sutcliffe in Portland, Ore.
The 120,000-square-foot Palm Springs casino, set to open in November, will be more luxurious than the existing casino.
"It is definitely a more exciting facility than the current Palm Springs casino - larger, roomier, with far more amenities," Hyatt says.
The transaction posed challenges that don't arise in a conventional financing deal, according to Goldman.
In a financing deal for a Las Vegas casino, for instance, the borrower typically would use real estate as collateral. But federal regulations prevent Native American tribes from mortgaging reservation land. The tribe's land, which is held by the federal government in trust, is beyond the reach of creditors.
When Native American tribes borrow money for casino financing, they typically will use income generated from their casino business as collateral.
"In a conventional deal, if a borrower fails to repay the lender, it forecloses on the mortgage and takes the land and casino," Goldman says. "That doesn't happen here."
If a tribe defaults on the loan, the creditors also face other restrictions. Federal law prohibits the lenders from taking over the operations of the casino, so the lenders usually will work with the tribe's management in an effort to correct any problems and get operations back on track, Hyatt says. If that doesn't happen, the lenders may pursue legal action.
Although the tribe is protected by the "sovereign immunity" doctrine that prevents suits against a sovereign nation without its consent, the lawyers included a limited waiver of this immunity in the loan agreement.
"Part of the challenge is crafting a narrow avenue by which the lenders could enforce the loan if they should need to," Goldman says. "That's part of a thick loan document."
But despite the challenges, the lenders were eager to participate in the deal, Hyatt says, noting that Agua Caliente has a solid credit history and that its casino operations have been successful.
Agua Caliente's legal advisers also included Century City lawyer Bernie Simons of Reed Smith and tribal attorney Art Bunce, a sole practitioner.