River Rock Entertainment Authority: The final obstacle to refinancing now resolved

May 31, 2011

Those of you who have been following my articles on the River Rock casino bonds will recall that they fall due for refinancing in November of this year, and that this refinancing process has been delayed because the casino is negotiating its agreement with Sonoma County. If you haven’t been following my articles, that should pretty much bring you up to date.

The agreement with Sonoma County required River Rock to build an emergency access road, and also to pay to the county $75 million by 2020 in order to address the increased usage of county resources caused by a planned expansion of the casino. Now that the expansion has been put on indefinite hold, it would seem that the county requiring the full $75 million would place an undue burden on River Rock’s finances and also be unfair.

The River Rock Entertainment Authority has renegotiated the agreement, cutting the required payments from $5 million per year, increasing by four percent annually, to a flat $3.5 million per year. However,  if the expansion does open River Rock will have to make such additional payments as to bring the total payment (including the $10.3 million already paid) to $75 million, and at any rate the full $75 million must be paid by 2020, subject to future negotiation. Furthermore, the Authority also secured an agreement to build the road on an alternate site, which is now in escrow, and which allows for a 20% grade instead of a 10% grade, a change which the casino estimates will save up to $15 million.

So, now that the $75 million obligation has been deferred, which reduces its present value, and the road savings plan is looking more definite, it would appear that River Rock is a more attractive prospect from the perspective of a bond buyer. Based on last year’s free cash flow figures, and treating the $3.5 million annual payment as a fixed charge, the casino has a fixed charge coverage ratio of 2.5x, as compared to 2.3x before the renegotiation, which is a more attractive situation. Also, the River Rock Entertainment Authority has $43 million in cash on its balance sheet, which, if the new road plan goes through, would be more available as a source of liquidity or simply to pay back part of the bonds. As result, it should be easier for River Rock to refinance.

The market seems to greet this renegotiation with approval; prices have improved to around 92 from generally 88 before the announcement (as a reminder, the bonds were at 84 when I recommended them). River Rock now has a clear route to refinancing (and not too soon, I should note, as refinancing bonds seems to be a months-long process). I still find this issue attractive and find it highly unlikely that there should be no refinancing.

110 Responses to “River Rock Entertainment Authority: The final obstacle to refinancing now resolved”

  1. Thanks very much for this information!

  2. I have owned RR bonds since summer 2010, before I knew of your posts. Thanks for them and your research. I have added to my position a number of times since.

    I had seen the Watch article on the $3.5 million per year figure, but it did not indicate the approval for the 20% grade road, only the time extension of a year to complete it. Where did you find that information?

    Thanks,

    Edward

  3. I read the text of the contract modifications at the SEC’s website. You can search for company filings by name, and it lists all of the filings including the 8-K announcing the modificiation.

  4. thanks and continued good fortune to you

  5. I have also owned RR bonds since summer 2010 and continue to add to my position. With the addition to the penny slots in the casino do you believe the 2nd quarter numbers will be better or worse? There seems to be alot of chatter about the possibility that slot machines generate more revenue for the casino over a poker room.

    Also, do you have any heightened concern about the RR bonds being the price is now moving sideways and there is such a wide spread between the bid an offer? As we already know Moody’s & S&P both have negative outlooks on the refinancing of the bonds, what is your opinion?

  6. River Rock bonds seem like a good bet, but the laws governing tribal sovereignty seem to add a significant risk. That is, with default, the bondholders have no rights to take possession of the assets.

    You had written earlier about Mohegan Tribal bonds as well. These seem to be much risker given the additional leverage involved. I have run across news of the 2009 default of Mashantucket Western Pequot nation bonds involving the Foxwoods casino. Basically, it seems that the bondholders are forced into working out a solution with the tribe. There seems to be no resolution.

    Do you know what happens in this situation? Is additional interest paid? Do bond holders take a haircut on the face value?

  7. It is true that slot machines have a higher revenue per square foot than any table games, especially poker. However, I don’t know if this alone would be enough to offset the sort of general slump in mood that seems to have set in this quarter. As for the refinancing, I think the market is probably going to trade sideways until there are more concrete developments about the refinancing announced. At any rate, prices are only down about $1 or $1.25 since the bounce from the amendment of the casino’s agreement with Sonoma County. I would expect a bond issue this size to have a pretty large and variable spread based on liquidity alone, really.

  8. Even in the event of bankruptcy, secured creditors rarely take possession of the assets. But if bondholders are forced to work out a deal, there is often some kind of haircut involved. The most likely outcome, I believe, is a deferral of interest payments. I do think, though, that cash flows at both casinos will be sufficient to allow refinancing of at least the debt that is coming up in the next couple of years.

  9. I was reading some of your older posts on an earlier RREA blog, and I am wondering are you now getting concerned that to date still no word on the refinancing of the bonds? In a previous statement you said to be worried if by June still no word, it is now July and nothing. Also the pricing of the bond is slightly above the level it was at when it was downgraded back in March (appx. 86), it seems that investors are now lowering there price in order to sell off the bonds. What would be your recommendation at this point? Also, have you spoke with Don Duffy who is the head of investor relations?

  10. In the event of Bankruptcy the Trustee would take control of the assets and more importantly, the cash flow, and disburse normal operating expenses and presumably debt payments upon petition of creditors.

  11. I am surprised, yes, that the Entertainment Authority has not presented us with any updates, although the renegotiation with Sonoma County I consider a positive development. I did see in the most recent quarterly filing a charge of $8000 for “offering cost in connection with refinancing of debt,” but that could be anything. I still believe refinancing is likely, and I have not spoken with Investor Relations.

  12. I’m assuming with the financial stocks in chaos the refinancing isn’t a done deal. Don Duffy is scurrying from phone calls. I called him and left a message but no return call. We should all be sweating bullets. This management team seems incompetent. What do you think?

  13. Well in the last week or so we went from $94 to $85-ish and Fidelity is not longer offering to buy them back. Stomach churning. Somebody calls them!

  14. We may be (and I hope we are) jumping to conclusions. The big picture is RREA has now resolved there issue with sonoma county pertaining to the alternate road. S&P put out a commentary on the gaming sector giving it a stable outlook. This selloff could be where investors are seeing an equity market surge and finding with no word on the refinancing they would rather cut there losses. Fundamentally RREA should have no issue refinancing the debt, there must be an outstanding problem we are not hearing about. With no new 8K and or 10Q out I would like to know what is going on myself. All the pieces now fit and the time is now, what is RREA waiting for?

  15. I attempted to sell the bonds on Monday, the 11th. After getting a bid of 83.50 from my Vanguard brokerage service which I rejected as too low, at least the broker put it out for more bids and I sold at 84.47. I also have more of the bonds with Fidelity and their offer was only 81 which I of course rejected. Now, if you request quotes from the Fidelity bond desk, about the best they will do is 82.
    These bonds are trading at a price that assumes a default is imminent. Don’t know what the rating agencies are thinking, but then what do they know…..they said that Lehman bonds were investment grade the day before the bankruptcy.
    I’ll keep you posted on what I find and hope that all of you that are with me in the same boat will do the same. Good luck….we’ll neen it.

  16. There is no confidence in this management team; however, many companies are profitable with incompetent management. Personally, I unsuccessfully attempted to convince RREA to finance the bonds while the market was good but they ignored my advice because of the roadway expense. It didn’t make since to wait for the resolution with the county to refinance the bonds. There are some positives. RREA has good cash flow. If RREA can’t refinance the bonds, the bondholders could give them an extension of maturity with a higher yield and a more restrictive covenant. Remember with RREA cash flow, there isn’t too mush risk until after the competition opens a few years from now. With a high yield and a restrictive covenant, RREA might just be a buy at these price because of the safety net described above. By the way, i’m a large investor in RREA bonds.

  17. I don’t agree they’re trading at default levels; Moodys says for what they have rated these, in the event of default a 50% recovery is to be expected. Last year the bonds drifted down into the mid 80’s by mid-October, then when the interest was paid they jumped back up. The ratcheting down in price now seems to me to be a case of a thinly traded security trading in the absence of information, more than anybody actually knowing what is going on.

    As well, even though there is a 9.75% rate, there is so little time left to maturity the only way to earn a return is to buy at a big discount. So the large discount for what is clearly not a sure thing seems reasonable to me. It is to be expected that it will take a few months to get some refi offers on the table, and they only resolved the two key issues May 30 or so. It would not surprise me that the issue is not resolved coincident with their next earnings release, which could result in another leg down.

    I am curious at what level they might actually buy some themselves on the open market.

  18. I appreciate your comments and thinking Edward, but I don’t think your explanation that the bonds are selling at a big discount because of the short time to maturity is correct. I have another bond with the same B-/C+++ rating as Black Rock that will be due in Sept. It is selling right at par, about 100 because payoff seems pretty certain. The bonds are MGIC, Mortgage Investment Corp.
    I sold my Black Rock that is in my IRA because I can’t take the risk in a retirement account where I can’t even take a tax write off. I still hold the bonds in my individual accout.
    For those who want to take the gamble, the present price seems pretty attractive. The yield comes out to about 60% since the time is only four months. Now if that doesn’t tell you that a lot of people think a default, (or at least some extension to the terms and payout) is somewhat likely, I don’t know what does.

  19. Wade definitely has some good points. Let me elaborate a little on Wade’s opinion. The price definitely is assuming a default; however, it could represent a remiss management team. If you call them and inquiry about the bonds, RREA will tell you to take a hike. Basically, RREA isn’t divulging anything about the refi for the bonds. Therefore, the market is punishing their reckless behavior. On the other hand, I think that the refi will happen but I wouldn’t bet my life on it. If the refi doesn’t happen, they should request an extension of the maturity from the bondholders. The current price is attractive due to their strong cash flow. The main risk is when the competition opens ? years from now.

  20. t\Thanks for the info. ANy specific ideas why the bonds have been going lower with only 3 months left until payoff? What is the risk in buying the bonds now if you have some free cash.

    jetlag

  21. Thanks Craig for your thoughts which are right on. Investors don’t like uncertainty and River Rocks not giving out any information on what is going on is THE primary factor in them selling at a deep discount corresponding to a likely default. If only we knew, but how can you invest in the dark? Good luck to all of us in the same boat…..sorry I called them Black Rock, rather that River Rock in my post…..must have been my subconscious talking. Take care all. Wade
    Oh,Craig, consider these bonds a gamble with a potential high payoff (60% return over a four month period) but also a significant risk of having to wait for years in case of default or extension of the bonds terms. Oh, and for those hoping for a fifty cents on the dollar payout in case of default, good luck. They originally thought Lehman bonds would pay out about 6o cents on the dollar, now it appears they will pay out about 20 cents on the dollar and it will take years to get even that. Go for it only if you can take the risk and don’t bet the farm. Good luck.

  22. If you read my prior posts, they should explain why the bonds are going lower with 3 months until payoff. Management is remiss. They don’t understand that perception brings home the bacon in the financial markets. The market place is punishing them for their lack of knowledge of the financial markets. Whenever you can invest in a profitable company with horrific management, it is a screaming buy. RREA fits this description. RREA refused to refi the bonds when the going was good. Anyway, I personally think that the bonds are a great buy if you have free cash; although, there is a descent chance that the refi will not happen. In summation, don’t make any short-term decisions. If the refi doesn’t happen, you will receive a juicy yield for a few years. Good luck with your investing. For the record, I am a holder of RREA bonds.

  23. Good comments all. Sure I’d like news, but I don’t agree that management is remiss by not giving frequent updates on their progress. They said in their last conf. call they’d pursue the refi road show in earnest once their two main issues were resolved, and I suspect they have done just that. Next update will be the August conf. call (assuming there is one).

    Anyone know why RREA wouldn’t consider buying some back themselves at these prices? Or possibly, already is?

  24. Good question Edward….whether RREA is buying back the bonds at these prices. They should, if their balance sheet will let them. I think the market price is telling us that they are not in the market and buying….it would certainly give the price some support.

  25. I own more than 100 bonds and have a investor friend who has more. We are trying to get info like everyone else…I called Don Duffey, Joe C, the CFO and got no answer this week. Maybe quiet period stuff before an announcement. I exchanged emails with Dara D in investor relations. I accused her of with holding info as she indicated they were working on an announcement to come out soon. Like everyone else I am anxious about the refi but overall I think they are strong enough to get over that hump one way or another. Lattime I talked to Joe C he indicated that a few institutions owned most of the bonds. He also indicated that the refi was not done but proceeding nicely on track to towards the goal line. Maybe …that is why they are not worried about the chatter from us small retail bond holders. I hope I added a little useful info.
    I don’t know if Mgt is BAD but the VERY tight lipped.

    I did ask Joe C about buying the Bonds back. He indicated it was legal and possible but sort of hinted that them Financial “people” preferred to see the cash in the bank rather than having the reduced liabilities. HArd to turn down an instant 20% gain.. AS I remember RR had about 40 Million in Cash which if used to buy bonds would reduce the liabilities by about $50 M at todays prices. Maybe they are playing poker with us?

    captjetlag.

  26. Wade, you just hit the nail on the head. RREA is not buying any bonds. Firstly, at least according to RREA they were waiting for the settlement with the county before taking the refi to the street. The CFO stated “RREA needs to know the exact amount of the offering before they can start any refi.” The worst case scenario for the access road was 20 million dollars. Therefore, if RREA had the 20 million in free cash on the books, they could have gone to the market for the refi while the peaches were ripe. It is obvious from RREA comments and the bond price that RREA is not active in the market place. Lastly, the perception is more powerful than the sword. Ask Lehman!!!!!

  27. Maybe they just took your advice. A buy order of $700,000 at $75 just went through. Dealers might be accumulating for them.

  28. Mike, I do concur with your hypothesis that RREA might be playing poker with us. These people seem rather shady. I wouldn’t be surprised if they deliberately sat on the issue doing nothing and let the market drive the price down in order to later make a lowball buyback offer to creditors who, by that time, would have freaked out and be willing to accept it. It is quite unbelievable to have no refi news whatsoever to this point.

  29. ger, I, saw those trades for $700,000 cross the desk at $75. Here are the trades on the 28th from the website,
    http://investinginbonds.com/marketataglance.asp?catid=34

    07/28/2011
    16:25:16
    77.250
    400K

    07/28/2011
    15:20:41
    77.250
    929K

    07/28/2011
    15:20:19
    76.750
    929K

    07/28/2011
    13:13:33
    75.000
    700K

    07/28/2011
    13:12:44
    75.000
    700K

    07/28/2011
    13:12:44
    75.000
    700K

    07/28/2011
    12:41:10
    74.500
    15K

    07/28/2011
    12:41:00
    73.958
    15K

    This was an unusually large volume of large trades….most days the trades are a few thousand dollars each. It indicates to me that some individuals or perhaps junk bond mutual funds were unloading and the Bid price from the dealers was around 75. The next day, the trades ranged from 75 and a fraction to 80 and a fraction indicating that dealers were bidding around 75 and asking close to 80. All the trades the next day were well under a $100,000.
    Hope this helps all of us in the boat try to get a little better understanding of what is going on. We’re certainly not getting it from RREA. Good luck all. Wade

  30. It does look like some manipulation on a thinly traded bond. I saw the $75 in my weekly download of prices and was somewhat stunned, even though I only have 13 bonds. Wade can you tell which of those trades are buys and sells?

  31. Jeffrey, I can only guess from personal experience. I sold some of my bonds a couple of weeks ago. The day I sold, the best quote I could get was 81 even though the most recent trade at that time was 85. I therefore assumed that the bid and ask prices were about 81 and 85. If you look at trades throughout the day, they seem to jump between prices corresponding to a three or four point spread. I assume the trades at the lower prices are people selling to the market makers and trades at the higher level are people buying from the market makers. That’s my best guess. Last Friday it seemed prices were jumping beween about 76 and 80…so I assume those were Bid and Asked prices by the market makers.

  32. Oh, one other thought Jeffrey…..the large number of unusully large trades (hundreds of thousands to close to a million dollars) last Thurs. at around 75 to 76 indicated to me that some individuals with large holdings or a junk bond fund were unloading at that price. So the market makers should have a pretty large inventory on their hands which they will try to sell at an asked price of around 80. So 76 bid, 80 asked should be a pretty good floor and range on prices for now until we get some news or a large investor decides to either buy or sell. Good luck.

  33. Dear Jeffrey: According to Etrade’s trade history, 700 bonds were transferred between dealers, although this trade is reported as out of sequence), then 929 bonds were transferred between dealers and then immediately bought by a customer, and then 400 bonds were sold by a customer.

  34. Does anyone know when the next update from RREA is scheduled ?

  35. Harold, please don’t hold your breath for a positive update. It shall be the day after the chapter 11 filing. OOOOPs. They can file for chapter 11. Therefore, it shall be the day after they admit that they can’t refinance the bonds. As the market plummets, the odds of a successful offering diminishes. Would you loan a group of individuals with no financial intellect millions of dollars in this market? If you wouldn’t loan these clowns money, will the financial savvy guys loan their money. Anyway, when the peach was ripe, they should have pluck it. Full disclosure: I own exactly 1,805 of RREA bonds.

  36. Sorry, they can’t file for chapter 11.

  37. From the above it does sound like market makers making a nice profit on the thinly traded bond. At least someone wanted to take a large position in this bond at a very depreciated price. Maybe he knows something or maybe he is just very reckless despite the huge “yield to call” premium he would be receiving if there are no problems.

    Is “insider trading” even illegal on bonds like it is on stocks?

  38. Jeffrey, Jeffrey, Jeffrey. The bond market promotes illegal activity. The little guys must purchase through dealers. The dealer just calls another dealer and negotiates a guaranteed profit for himself. This market is antiquated but profitable for the dealers. Although the bond market is rigged, you can still make some nice cash. Chapter 11 is your main objective. Do your due diligence with the income statement. As long as the company doesn’t file for bankruptcy, your profit is there. The correct marketplace is for all bonds to trade on an electronic platform with matching bids and offers; however, there is no profit in this scenario for the dealers. We are in the middle of the technology-age but bonds are traded via telephone lines except BondDesk. All dealers can put their inventories on BondDesk but their advantages shall dissipate. Anyway, good luck.

  39. Craig,

    I feel your pain man, 1805 bonds! But your posts are beginning to border on paranoia. Maybe we can all meet at the casino and demand to see the Chief?

  40. Thy should have Q2 report any day now. For those who anticipate the worst: there were at least 4 tribal casino defaults in recent years. Total loss for investors in all cases. The tribes simply declare themselves unable to pay. No recourse, they are beyond the reach of normal law.

    The largest one – Mashantucket Pequot Tribal Nation – which last paid in 2009 (14.2 million of the $21.25 million semiannual interest), after which it simply stopped paying the interest. Also never paid back the principal. The case remain unresolved, there was some attempt to restructure, nothing came out of it. For the full gory store read:

    http://rockthetruth2.blogspot.com/2010/04/casino-comparisons-connecticuts.html

  41. Does anyone have the office phone numbers. The new website has done a good job hiding the contact info that was so available on the old web site. Delisting the phone number from the internet must really cut the calls from small investors like me. Now answers to my phone calls from a couple weeks ago.

    Has anyone gotten ANY news about the refi?

    Mike

  42. Did anyone notice that an 8k was filed and the access road will begin construction. This is what tied up the refinance in the first place. I would imagine the refinance came move forward now. Any thoughts?

  43. I heard today that RREA has scheduled a conference call on Sept. 4 @ 5:00 p.m. Lets hope it is good news.

  44. Yes, this matter was brought to my attention by a reader. It is a positive development, but I hope that management was not waiting for this issue to be resolved before they started shopping around the refinancing in earnest. But I don’t know if it would surprise me if they did.

  45. Need to correct myself.

    No all indian casino defaults were total loss. Per WSJ article (go to the first result on this Google search http://www.google.com/search?source=ig&hl=en&rlz=&q=Taking+a+Hit+at+Indian+Casino&btnG=Google+Search): a few were restructured. For example some tribe in Michigan exchanged their original 2014 $143 million issue with a significant haircut, in excess of 60%, part paid in cash (16c on the dollar), part in a new bond issue (28c worth). True their financial situation was far worse than that of the River Rock if Fructivore estimate can be trusted.

    But even when the financial situation is OK the tribes are known to simply walk away from their obligations. Example: Mashantucket Pequot Tribe walked away from their $500M, 2030+ bond in 2009, total default, no restructuring of any kind, and that despite the fact that according to the Wikipedia it is “more profitable than any one casino in Las Vegas or Atlantic City”. Earning $1.5 billion per year. The tribe and the state always come first. The latter alone received $1.7 billion from them in the last ten years while they didn’t have enough to pay $40 million a year in interest on the loan that made that $1.5 billion to the state possible.

    What does it mean for River Rock? Well they have their choice, either total default, major haircut restructuring or refinancing. No meaningful penalty for defaulting or haircutting so that’s likely will be their first choice IMHO.

    Besides refinancing may be tricky, not because their forgot to do it early enough or were too lazy as some here seem to be suggesting, but because banks learned the hard way indian casino bonds are way too risky. No recourse in case of default. Even for the most recent ones were some banks tried to protect themselves with waivers of sovereign immunity, promises that the casino would stay in business and that payments would first go to the banks riders.

    Those riders turned out to be meaningless because of a law enacted in 1871 that requires that any agreement that encumbers Indian land for more than seven years is invalid, unless it has been approved by the Secretary of Interior. And only a handful of indian casino bonds have been approved by the Secretary of Interior.

    Will see where we are soon enough.

    P.S. calling them makes zero sense, does anyone expect two $300k a year smart operators and their $9k a year secretary to call you back?

  46. one minor titbit, the tribe appears to be currently w/o effective legal representation judging from their recent solicitation:

    http://www.drycreekrancheria.com/pdf/Request%20for%20Proposal%20for%20Legal%20Assistance.pdf

    They expect to select someone on September 17. Someone should ask them about it at the coming conference call.

  47. What I don’t understand is how any indian tribe can default on their bonds and still stay in business for the following reason. Surely they must rely on some trade credit for regular operating expenses from food vendors, contractors, constuction companies, etc. If I am one of those vendors, I am not sure I do business with tribe if they have a track record of defaulting on large debts. Anyone have any thoughts about that?

    Having said that, I think the most likely solution is for the tribe to make an exchange offer of old bonds for new bonds. I wouldn’t be opposed to that.

  48. Actually Q2 results will be reported this coming Thuesday, not in September, conference call to follow at 1pm ET. Most likely IMHO will be roughly 3% drop in revenues (general trend in small gambling operations countrywide), not much change in ETBITA, a lot of irrelevant yapping about roads, compacts and such and “we’re working on it” if someone asks about refinancing. The latter because even if they decided already to default or do a haircut they will announce it as late as possible i.e within 30 days after 11/01. Also it will be ” working on it” because refinancing negotiations cannot be really done w/o heavy involvement of external legal “talent” and they don’t seem to have one to work with at the moment as I wrote above. The two $300k/year classic casino shysters running this joint now aren’t legal or talent anything. P.S. Sure operating casinos Indian or not pay their vendors on time, defaulting on their bonds has nothing to do with it.

  49. wg….You should correct yourself on this statement also:

    “Besides refinancing may be tricky, not because their forgot to do it early enough or were too lazy as some here seem to be suggesting, but because banks learned the hard way indian casino bonds are way too risky. No recourse in case of default. Even for the most recent ones were some banks tried to protect themselves with waivers of sovereign immunity, promises that the casino would stay in business and that payments would first go to the banks riders.”

    If you are going to respond, please do so intellectually. Firstly, if investment banks didn’t want to lend to tribes, all tribes would default. Historically, many markets are sullied by their industry. Therefore, they must pay higher yields with a more restrictive covenant. If you read Moody’s report on the downgrade, they specifically stated the lack of progress in the refi was the central issue in the downgrade. Please don’t use this board to sling reckless remarks which are contrary to the facts.

  50. River Rock Casino has waived its sovereign immunity regarding several issues in connection with the bonds-

    “We have granted a limited waiver of sovereign immunity on behalf of the Tribe and expressly consented to legal proceedings by the Trustee to interpret or enforce the terms of the Indenture or the Senior Notes as against any of our assets and revenues and against the revenues of our casino and related amenities. Express waivers of tribal sovereign immunity generally are valid if properly made, and if such waivers of sovereign immunity are held to be ineffective investors may not be able to enforce their rights and remedies under the Senior Notes or exercise any remedy for violations of federal securities laws.”

    source – http://www.sec.gov/Archives/edgar/data/1288924/000110465911017497/a11-2308_110k.htm

    Also Foxwoods Casino is very close to reaching a deal with creditors, and not a terrible one, in contrarty to what has been written here-
    “The Pequots’ debt restructuring is the largest among Indian tribes that run casinos in the U.S. Some creditors will lose significant sums, in the worst case more than 65% of their original investment, people familiar with the matter say. But, for the most part, the tribe’s creditors are extending due dates on debt and rolling the dice on a Foxwoods rebound” and “In the deal under discussion, the tribe’s debt burden would remain high, at about $1.5 billion, said people familiar with the matter. Creditors would, for the most part, avoid huge losses”

    source – http://www.morningstar.co.uk/uk/markets/newsfeeditem.aspx?id=155144956414320

    Also, I do not know the finacial situation of Foxwoods Casino during 2009 when it defaulted, but I believe River Rock is in much better shape compared with its debt burden. If this was a normal incorporated company I would have seen no reason for a refinance, and although this is a tribe it is in their best interest to achieve a reasonable refinance here, if they want to be able to borrow money in the future. Even in the Foxwoods Casino’s case, the CEO got fired after saying payments to the tribe should come before interest payments frighting debators in the process.

  51. We have granted a limited waiver of sovereign immunity on behalf of the Tribe…

    The word that scares me here is “limited”

  52. From the just released Q2:

    “…We have a significant amount of debt coming due in fiscal 2011 that we may not be able to repay. Our $200.0 million of Senior Notes mature in November 2011. We have been exploring our options to refinance our Senior Notes and expect to PROPOSE A REFINANCING transaction in the near future…”

    I don’t know, reading between the lines I think they mean either extension of the original issue or a haircut. Expected it. Just walking from the debt is not longer acceptable these days with all that stink raised in the national media about indian casinos defaulting left and right. Plus their financial situation is too stable (a few percent drop in revenue only as I predicted) to really justify a full default.

    Sad that the overall sentiment, industry, credit markets, etc is such that they won’t be able to simply roll this issue.

    Haircut is obviously the least desirable realistic outcome especially if as high as in some other cases, 60% for example which I would consider a major loss. Extending the term on the original loan would be much preferable IMHO. Let us dream.

    The actual outcome however I believe will depend on how assertive/aggressive/proactive people holding this debt will be. And that doesn’t mean this forum but a few institutions holding the bulk of this loan. Even if aggressive/proactive enough the going will be tough if the just reported 2 year fight (tribe vs BoA, Wells Fargo) to “resolve” the 2009 Pequots default is to teach us anything. Plus the actual owners seem inactive publicly at least.

    —-
    So, what have I learned from all this? Why? The same old, unteachable lesson. Do your due diligence first.

    I found about these bonds first from my Fidelity short term bond screen. Caught my attention, return in excess of 20% when everything else pays a few percent at best in the short term. Did a brief Google search, came across Fructivore’s original post, which was encouraging and seemed solid enough bookkeeper-wise but unfortunately missed the entire national controversy surrounding the issue of indian casino debt. Went for a ride like most people here, learning much more in the process, too late of course, and enjoying it less and less as the days went by.

  53. Way too much negativity here. IMHO- Only if the credit markets freeze again will a refinance at par or close to it not occur. Execs without equity don’t have anything to gain by stiffing bond investors. RREA and the tribe is making good money and wants to expand someday which will take more investor money. The 10Q looks OK. RREA has lots of cash on hand. Stop assuming the worst. Sure it’s high risk debt, and these bonds were rated as high risk well before the Fructivore posts. Indian debt problems were well noted more than a year ago. This situation was unusual in that the level of profitability is outstanding. A well thought out opinion on high risk is only that, and I have appreciated the opinions.

  54. Join the crowd. Sounds like you have some doubts yourself about the situation.

  55. I have doubts about anything other than a money market fund! And even there….

  56. I was listening to the River Rock conference call, and in response to a question management did say that they had an “underwriter,” who is shopping the deal around with potential buyers. Now, that is, I think, a fairly early step in the refinancing process, but it is good to know that there has been progress in the sense that a specific investment bank has apparently been engaged (although it is perhaps premature to call them an underwriter). I was thinking that River rock might have to use some of its cash hoard to sweeten the pot for an underwriting deal, which is reflective of an unfortunate reality for River Rock but which wouldn’t actually affect us current bondholders in any way.

    Failing that, I do think an exchange offer would be the least painful outcome for us: take your interest payment, a bit of extra cash maybe, and change your 2011 bonds for 2015 bonds with the same terms.

  57. For the record, the conference call ended without processing me in the queue. RREA just called me to apologize for not processing my call in the queue. Apparently, the conference call is a fraud. Actually, RREA controls who ask the questions. Anyway, they didn’t divulge anything of value that I can post on the board. I personally believe if you hold on to your bonds they will eventually be a good investment; however, I will be somewhat reluctantly to invest in bonds by tribes because they don’t hire capable management. This is my personal opinion. I wish everyone good luck with your investment.

  58. “We have a significant amount of debt coming due in fiscal 2011 that we may not be able to repay.”
    For a company to make this 10k statement two and a half months from their debt maturity, things are pretty clear, any way you’re tempted to spin it, including over-extended uses of the word “underwriter”, and “shopping around”, and such. A lot of people on this board seem in denial, or ever-willing to dream about getting their loaned money back. I tend to agree with “wg”‘s pragmatism. And yes, the situation is revolting. What’s to be done, though? Sure, we have to wait till November for confirmation, but it’s time to get pro-active. What kind of loss would you be willing to have squeezed out of you (just because they can)? 10%? 20%? Could individual creditors, like us, get organized in some form to take action? Could we join any major creditor in taking action? The latter might be easier. Anybody with experience in that here?

  59. It’s been trading around 75 for the last few weeks. How fast will it drop to 50 (or under) as D-day approaches?

  60. own to 50? Possible, who knows? Keep in mind however they still promise to refinance it somehow.

    Some additional loose long ramblings (too late obviously and typos galore) below.

    From the latest 10Q – “We have been exploring our options to refinance our Senior Notes and expect to propose a refinancing transaction in the near future. While we expect TO BE ABLE to refinance this debt, there can be no assurances that this in fact will occur.”

    Will they be really able to refinance, assuming that’s what they really want?

    Maybe! See below.

    [forcing a haircut, stiffing their lenders in the essence, is an extremely tempting proposition in their situation, little to lose, $100+ million to gain. And nothing unusual about it, stiffing/fleecing/milking individual investors is a time honored tradition on the Wall Street, that’s what the Wall Street does best, does daily, every second of every hour, their sole reason for existence so to speak.]

    Consider the situation from a point of an potential investor sitting on a spare $200 million that is producing nothing these days, in fact slowly losing it given the 2-3% inflation rate. There are plenty of those around, the country is swimming in the unheard of amounts of cash these days, so 200M should be, in principle, extremely easy to find.

    In principle only, because 200 million for a mickey mouse outfit like this is a rather princely amount of money. Plus you need to ask yourself what do they want to do it with. And if you do your jaw will drop. They want it to refinance their old debt, not to invest in something that could bring them some additional income in the future.

    If not totally discouraged by now, you ask the next question, what did they do with the original $200 million.

    Well not much, they spent some of it on some nominal improvements to their old casino, a small chunk went to pay for the salaries of the two schmoes who run this outfit, disastrously so IMHO, an estimated $4M total. The major chuck of it, however, went for some harebrained expansion scheme of theirs, a new Taj Mahal of theirs, which they abandoned after spending $67M on it. $67 million! For God sake, just on planning, nothing, absolutely nothing was built.

    In other words, $67 million of the original 200M down the drain with no chance of ever recovering it. Their most recent 10Q: “… We will be unable to proceed with the expansion project for the foreseeable future due to the unavailability of capital and lack of cash flow. ….”

    Not everything was retrievably lost though, they still have some of it in cash, around $37 million at the last counting.

    So what happened to the rest of those $200M? Who knows? Disappeared in some kind of a black hole I guess.

    So why would you even consider lending them anything?

    Well, they are producing some INCOME, not much of it and steadily decreasing, but enough to pay 8-9% percent on $200M for the foreseeable future with enough left over to pay the principal back in some 20-30 year timeframe assuming they:

    a) will not try to start another harebrained expansion scheme,

    b) reduce salaries of their CEO and CFO to a negative $300k a year (as earned) and promise

    c) not to issue any new debt or enter into additional loan/credit arrangements. This for both the casino and the tribe.

    So with a few well written riders, one could get oneself a relatively decent, relatively safe deal, 8-9% even 10% for several years, which would be not too shabby in present circumstances.

    So who knows, maybe we will see them rolling it over.

  61. Everyone sounds to have many strong points, but let us all remember there have been 6 (before Real Mex) now 7 corporate bonds to default this year. Before Real Mex we were talking 1.6% default rate for 2011. This 1.6% includes corporations of distinctive charecteristics including negative cash flow. By the way out of the 6 not 1 gaming or entertainment default. As we can see on the cash flow statement there is “Payments of offering cost in connection with refinancing of debt” which means there is a step in the right direction. Also, RR is in talks with creditor groups which is a sign that a deal is being worked on however there maybe some political opposition as there 10Q and now Moodys states after the downgrade. Matter of fact is that RR has build america bonds through California they are able to tap into to get additional financing. My conclusion as an investor is this maybe taking time and it feels like the days are getting shorter but a deal will come to light. There are to many negatives as opposed to positive outcomes if the bond were to default and when considering all factors, wheather theres a note swap or full refi we will get compensated for the time we have dreaded.

  62. Moody’s yesterday downgraded this thing to Caa2 from Caa1, i.e. one notch down. They’ve had it on a negative credit watch since the previous downgrade (in March) which they discontinued with this downgrade. So at least they don’t anticipate downgrading it any further at the moment. Something!

    In other words we are sitting smack in the middle of Caa category that is” judged to be of poor standing and are subject to very high credit risk”. Whatever that means.

  63. Unfortunately the negative watch continues. Fidelity misled me.

    Also Moody’s confirms the existence of “material amount of indebtedness issued by the Tribe” that is also unresolved (something south of $50M if I recall correctly) and some major tensions on the casino-tribe line. See below.

    —————-

    RATINGS RATIONALE

    The downgrade of CFR to Caa2 reflects continued delays in completing the refinancing of RREA’s $200 million senior notes due November 1, 2011, which has heighted the risk of a near-term payment default. Despite recent resolution on some critical issues that had in part caused delays in the refinancing process and the Authority’s relatively stable operating performance, progress has been much slower than anticipated. At this juncture, Moody’s believes the probability of further delays in refinancing beyond the debt maturity date has increased, considering the political elements that are part of the tribe’s decision making process combined with other unresolved complicating factors including the refinancing of material amount of indebtedness issued by the Tribe, the owners of the River Rock casino.

    The review for possible downgrade suggests that the rating could be lowered further if the Authority is not able to refinance the notes on a timely basis. There is no upward rating pressure on the rating given the review.

  64. We may have unfortunately a situation here where the tribe’s need to wiggle itself out from under that $50M debt of theirs may force a comprehensive arrangement where their bank gets paid in full while the casino defaults, or haircuts massively on their bond issue. That’s what happened in Mashantucket Pequot Tribal Nation case, bankers got paid in full, bond holders took a massive 65% haircut.

    Additional mumblings, consider skipping, irrelevant mostly.

    River Rock casino people sometimes like to claim being legally separate from the tribe when they want to hide something as was the case in that private tribal loan, but the reality is they are jointed at the hip, the tribe people spent 67M on a new casino, the casino people promptly compensate them for that in FULL. And so on.

    BTW why $67M, with nothing to show for it? Well, because likely this was a standard indian casino construction cesspool of gargantuan proportions. Main project cut to the smallest possible pieces (electrical, plumbing, grounds, ventilation, roads, architecture, etc, etc) to maximize “returns” to the tribe. Awarded haphazardly in the most crony way possible, w/o regard for price/competence, to a gazillion of tribe related companies (third cousin of some tribe or county council member e.q) having design/planning in their names only which just subcontract the actual work out. Total disconnect between projects. Thus grossly grossly overpaid 67M, and almost nothing to show for it.

    In a sense this reminds me of the organization of american cities. Possibly one of the most corruptogenic system in the entire world.

    While fully keeping their democratic pretenses they are basically massive feeding lots, funding themselves by simply imposing taxes on their citizens.

    Take Santa Clara, they managed to dupe their citizens into paying them outrageous pensions – $100k on average as of now, 120k for cops, free for life medical care, and yearly cost of living increases regardless of what the actual CPI is.

    To do that they “opted out”, how nice of them, of Social Security (pays too little, 25k max, and because it requires contributions from one’s paychecks and we just cannot have it) and simply pass the legislation requiring their citizens to pay for their retirement plan, of their own design, in full. Nice arrangement if you can have it.

    Indian tribe casinos are basically that, similar massive feeding lots, attracting all kinds of people, a-holes of all kinds, shady characters, sleazy operators, shysters, simple hangers, leachers, etc, all slurping greedily as fast as they can.

    That’s what my city looks like.

  65. I do not care about moody downgraded . I am caring about cash flow . Let assumption , It default . we paid 80(some may get 75)to buy the bond. each year we can get 9.75 . if RRA default we can get the cash flow was to the tribe about 20M so it can be 10. plus we can get cash account for about 20M (from 34 M ) about 10 for every 100.
    if it default we can get 30 in first year . 20 each year after . so if the casino can last for three and half year we can get our money back .
    this is the worst situation. I do not think it is too much rick .

  66. Nick is on point. Nick’s logic was the predication for my investment in RRA. My numbers are similar to Nick’s. The company will not flippantly stop paying interest because the courts shall determine their destiny. Most 40 yr old men don’t live home with their parents because they don’t want to hear the noise from them. Therefore, adults become responsible to stay independent. In essence, RRA shall refinance or extend the maturity of the bonds so that they can control their own operations. Anyway, I assume a possible hiccup before making my investment but i’m not worried about the investment. Lastly, I personally believe that this is a good investment at these prices but do your homework.

  67. WSJ is reporting today that the high yield junk bond market is freezing. New junk bond offerings are at their lowest level since 2008. This is the reason that I said that RRA management is remiss. It was obvious the market was on delicate footing but RRA refused to attempt to refinance the bonds while the fruit was ripped. It is obvious that the financing terms in the current market shall be more deleterious to the company’s financial position. Where is the fool on this site who questioned my assessment about this remiss management team? I’m waiting for his reply!!!!!!

  68. one more peripheral commentary

    My sense is that the primary problem here is with the tribe not the casino. They, the tribe, seem reckless, thoughtless, profligate spenders and disastrous planners. See their web site. Wanted swanky new casino, in Tuscony village style of all, to replace the existing one, the same size. Sheer idiotic megalomania, zero economic sense, then, now and in the future. In which they sunk $67M never to be seen again.

    The tribe obviously has no income of their own other than what they get from the casino, $12M a year, or $12k per tribe member. That wasn’t enough for them so they got themselves $30-40M credit line, maxed it out and now apparently defaulted on. So back to $12k per member which I admit ain’t much.

    The casino on the other hand chugs along fine, producing not a spectacular but a reasonably steady stream of income, living so far fully within its means.

    So who runs this tribe? Some construction guy, two retired elementary school teachers and a retired California prison system guard. Figures.

    Together with their casino’s $200M bond they owe effectively $250K per every tribe member including infants, toddlers, permanent drunkards and old toothless tired women. Plus $60M in future payments to the county.

    That’s roughly $1M in debt per household on which they are supposed to pay 9% interest. That is $90K per family. Borderline possible with the casino chipping in assuming they go into the full austerity mode but clearly paying back the principal is out of question.

    For a while I thought the casino had a decent chance to refinance (i.e. roll over) their bond, but now with the discovery of that private tribal loan I’m pessimistic. Whatever the legal aspects of this, in the final accounting it will be the casino i.e. us the bond holders that will bear the full brunt of that private tribe loan.

    Re fighting it in courts, I see little chance here, responsible legal firms will not take it (indian sovereignty issue), individual creditors joining the action rarely helps AFAIK (didn’t help in recovering my losses from Washington Mutual sudden and extremely fishy collapse). The only chance is that the institutional owners decide to fight it regardless to establish the precedent for the entire industry but I doubt it.

    If I were to bet on the outcome it would be on something similar to that of the Mashantucket Pequot Tribal Nation case. Some external quick fixer “artist” comes in and “squares” everything as usual, bankers getting everything back with bond holders shaved to the bone, 35c on the dollar.

    Hope I’m wrong.

  69. I like the all of the uncertainty which will reduce the price of the bond.
    the nature of India tribe management is always bad because they did not have many experience same as America two hundred years ago when compare to England. same as china just as open door policy thirty years ago . the management was much stupid than native tribe . but all of these had bright future .
    I think the key issue is money . will the india tribe get more money on default than refinance? in the even of default how much can bond holder get ?
    I did not get the excact number . with the fox wood case .they have a debt that can not maintained . even with the debt reductions and 6% rate they will have very tight budget.
    can someone compare the financial from fox wood after reduce the debt with the river rock current financial situation?

  70. interesting variant of English I must say.

    Foxwoods Casino is in a much worse shape, $2B debt with revenue that is only twice that of the River Rock casino ($0.2-0.25B debt). If the restructuring goes through that will be reduced to $1.5B which is still huge. So comparatively the River Rock casino is in a much much better shape.

    BTW another Fructivore’s pick Mohegan Sun bonds have been recently downgraded to Caa3, understandable given their Foxwoods’ sized debt load ($1.6B) and almost identical revenue.

    So losing here more that 50% should be very very unlikely. Let’s hope so.

    Re potential restructuring interest rates. Note that the currently proposed Foxwoods’ restructuring terms are extremely advantageous to them, 6 – 8% interest only. The presumable rationale is that is they traded their tribal sovereignty for better terms. Which we did some 8 years ago. So rolling over at the present 9+% appears unlikely.

  71. let assumption the river rock bond may be roll over with 6% rate . the bond principle will get 25% haircut .
    In that case the bond price will be 0.75(haircut)*0.6(effect of interest cut) = 0.45
    in cases without principle cut with 6% rate .
    the bond price will be 1*0.6=0.6
    the foxwoods total debt is about 2b , total revenue is double of river rock . after reorganize debt the foxwoods revenue can support 0.9 b (2.0* 0.45) debt. so river rock casino revenue may can support 0.45 b debt( 50% of foxwoods)
    the current debt of river rock is 0.2 b .
    the safe margin of without hair cut is 2.25(0.45/0.2)
    the safe margin of with instrerest rate reduce 6% is about 3.75 (4.5/(0.2*0.6)
    in my experience 3.75 is super safe . 2.25 is safe . so the most likely river rock will pay it in full or roll over without principle cut and interest unchanged. in the worst case the the bond is valued as 60% . now the bond trade as 72% . we have 12% down to worst case.

  72. update
    In preparing the restructuring proposal, Miller Buckfire assumed the casinos could generate from $200 million to $225 million a year in EBITDA (earnings before interest, income taxes, depreciation and amortization), enough to support a debt of no more than $1.3 billion, the senior adviser said. The projections, however, might have to be re-evaluated in light of the economic outlook and future competition in Massachusetts, the plan says.
    http://turtletalk.wordpress.com/2009/08/26/holy-cow-foxwoods-about-to-default-on-1b-in-debt/
    river rock EBITDA is about 60M so it can support about 360 M debt . the safe margin is 1.8(360/180). if with 6% rate with roll over the safe margin is about 3.
    we have a good chance to get money in full with 1.8 safe margin . in the worst case we can get 60% with 3 safe margin

  73. Good catch this article, I haven’t see it anywhere on the google in standard searches. Interesting they are finally starting to release more  up to date numbers, more complete data unfortunately they look uglyyy.

    Plus the article  shows we have a total War out there on the East Coast now, tribe vs lenders not normal financial negotiations. 

    The tribe is presently hiding everything they got money wise in third party banks “to gain leverage in negotiations”  as they put it. Their cash flow, whatever they still had available on their credit lines almost $100m, their last borrowed dollars from their bond issues, savings, operational funds, etc, all  into a lock box only to be used  for Government and for Incentive (see below)What king of methods are these? Unheard of so far in this country mostly. 

     The permitted payments are few, basically  government salaries/expenses and approx $100k a year to each adult tribe member just for being with them which believe or not is a major improvement, it used to be $200k for every swinging dick  and its gender opposite counterpart a few years backs. This if their famed Incentive. Which their people get for nothing.

    And the final warming from Chairman for those not getting it.  “Those who put the interests of bankers or bond holders ahead of our tribal community will have to answer to me.”

    Would never buy any bond of theirs under such circumstances. Hopefully River Rock will be less anal and more civilized in their own negotiations.

  74. Pretty quiet. What are all the master minds thinking.

  75. I bought 18K around 77 last week total 70K . waiting for news . I am confidence that we will get full money back .

  76. Wow, a lot of information here. I have owned the bonds for a year and 1/2 and have watched the rating go from b- to caa2. Wonder what the chances are of getting anything back on my investment? Actually it was my anal brokers investment.
    I get really nervous when something is this close to default. Thoughts?

  77. so does anyone have any new information on these river rock bonds? does it really come down to whether defaulting makes the tribe more money than refinancing? thats legal?

  78. Today there was a sale of one million bonds @ $73.00. Presently there are only ninety bonds for sale @ $90.00. I feel these are good signs.

  79. Just read all the comments. A bit confused aboutpossibilities. No new input in last week. Does anyone have any info since Oct. 5?

  80. Sorry,correction from Oct.5.One million dollars worth of bonds were sold,not one million bonds.Presently there is a bid for another 10,000 bonds @$70.00. News will be coming some time next week.

  81. Does anyone have a current bid price? my bloomberg is showing the market as 71.5/76.5 as of 1:15 central.

  82. Just bought 75m @ $72 with accrued.

  83. From River Rock’s website – thoughts?

    The Authority intends to use the proceeds from the offering of the New Notes, together with cash on hand and
    the proceeds from a concurrent private placement of $27.6 million of 6.50% Senior Subordinated Notes due
    2019, to retire all of its outstanding 9¾% Senior Notes due 2011 and the outstanding notes of the Tribe (as
    defined below) and to fund the construction of an emergency access road over the Tribe’s reservation and a
    portion of newly acquired property.

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTExNTk3fENoaWxkSUQ9LTF8VHlwZT0z&t=1

  84. now thats a home run.. 60s to 100 in a few weeks and so many people on here talking about the compnay defaulting for no reason.. congrats to the smart people who bought….and to all the nay sayers, bet you wish you had owned some….

  85. Why am I still seeing a price of $70 on this bond? Maybe that means nothing because it cannot be bought as the settle date is beyond the maturity date.

  86. Bonds further downgraded and price in the toilet again. Possible that they cannot sell new offering?

  87. From businesswek.com:

    River Rock Casino Debt Maturing Tomorrow May Default

    River Rock Entertainment Authority, the operator of an Indian-owned casino in Geyserville, California, is “unlikely” to refinance the $200 million in first-lien bonds maturing tomorrow, Standard & Poor’s said on Oct. 28 while downgrading the debt to CCC.

    The bonds traded on Oct. 28 at 62.975 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

    S&P said there is a “high likelihood” that the authority “will need to pursue a restructuring to address the maturity.”

    The new S&P rating lines up with the downgrade issued in August by Moody’s Investors Service.

    River Rock is an unincorporated governmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians. The tribe has a 75-acre reservation and fewer than 1,000 enrolled members, Moody’s said.

  88. Well has anyone heard anything about the D words

    Delay or Default, ?

    Fidelity did credit me with the interest and then it looks like they took it Back, as well as the principal.

    Anyone know anything from RRGA?

  89. I had the same thing happen in my fidelity account.

  90. Same in my Fidelity account. Yesterday they assured me the money was there and available for use. Today everything in the history has been removed. A call to them reveals that they have no idea what is going on. They are not getting a response from the issuer. Have no idea what to do with these things.

  91. I have spoken to Fidelity twice on 11/1 and once today, 11/2. Their response has been very poor. All they could refer me to was a Bloomberg story which is undated on the web stating that River Rock was refinancing. It seemed to mirror the 10/18 press release on the River Rock website.

    Yesterday, Fidelity credited my account with both the payoff and interest. They then reversed both and told me it was because payoff funds had not been deposited with Fidelity. This morning the Fidelity rep said it appeared to be a default but Fidelity had no further info. The rep had no response when I asked why Fidelity had not contacted River Rock.

    Not at all happy with Fidelity at this point as they seem to expect us to just sit around in the dark. The Alert they sent out about the S&P downgrade to CCC did not mention the reason as included above in the earlier post here from BigBillTolbert. Why not? They included some other alerts at the same time such as River Rock being removed from Credit Watch which would make one think that all was OK. Lesson learned. No more Indian casino bonds for me. I sure hope the other Indian casino bonds I hold get paid off at maturity next year.

  92. Nothing can be done!! Read the prospectus.

  93. From the 8K filed on 10/20/11:

    RISK FACTORS

    Risks Related to Our Business

    We will require a significant amount of cash to service our indebtedness and fund our gaming operations. Our ability to generate cash depends on many factors beyond our control.

    We do not currently have a revolving credit facility or other material line of credit in effect to fund our working capital needs. Accordingly, our ability to make payments on and refinance our debt, including the Notes, and to fund our gaming operations will depend solely on our ability to generate cash flow from our casino. Our ability to generate sufficient cash flow to satisfy our debt obligations will depend on our future operating performance that is subject to many economic, competitive, regulatory and business factors that are beyond our control. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments or seek to raise additional capital. These measures may not be available to us or, if available, they may not be sufficient to enable us to satisfy our obligations under the Notes and may restrict our ability to pay operating expenses. If our cash flow is insufficient and we are unable to implement one or more of these alternatives, we may not be able to service our debt obligations, including the Notes, or fund our gaming operations.

    Prospective purchasers of the Notes should not place undue reliance on our preliminary financial results.

    We have not finalized our financial results for the three months ended September 30, 2011. Therefore, the preliminary unaudited financial data for the three-month period ended September 30, 2011 presented in this offering memorandum is based upon the estimates of management and subject to change. Our final financial results for the three-month period ended September 30, 2011 may vary from present estimates as our quarterly financial statement close process is not complete and additional adjustments and developments may arise between now and the time the financial results for this period are finalized. Such changes and adjustments may be material and, accordingly, prospective purchasers of the Notes should not place undue reliance on our preliminary financial data. Estimates for any interim period are not necessarily indicative of operating results for any future period. See “Summary—Recent Developments—Preliminary Unaudited Financial Results for the Three-Month Period Ended September 30, 2011.”

  94. Latest Information from River Rock:

    River Rock Entertainment Authority Announces a Strongly Supported Forbearance and Support Agreement with Majority of Senior Noteholders
    Wednesday, November 02, 2011 4:46 PM

    River Rock Entertainment Authority (the “Authority”), the operator of the River Rock Casino in Sonoma County, California, today announced that it has, together with the Dry Creek Rancheria Band of Pomo Indians (the “Tribe”), entered into a Forbearance and Support Agreement (the “Forbearance and Support Agreement”) with holders in aggregate representing in excess of 60% of the outstanding principal amount of the Authority’s 9 ¾% senior notes due 2011 (the “9 ¾% Senior Notes”). The Forbearance and Support Agreement provides for the operations of the River Rock Casino to continue as usual. While we restructure there will be no changes to the operations of the River Rock Casino or impact on its customers, employees, vendors and suppliers.

    Under the terms of the Forbearance and Support Agreement, holders representing in excess of 60% of the outstanding principal amount of the 9 ¾% Senior Notes will forbear from exercising their respective rights and remedies in connection with defaults relating to the Authority’s failure to pay amounts due under the indenture governing the 9 ¾% Senior Notes while the Authority pursues the restructuring strategy agreed upon in the Forbearance and Support Agreement. We plan to make the terms of the Forbearance and Support Agreement public as soon as practicable.

    As contemplated by the Forbearance and Support Agreement, the Authority expects to launch an exchange offer (the “Exchange Offer”) for the 9 ¾% Senior Notes for new senior secured notes (the “New Senior Notes”), and to issue $27.6 million in aggregate principal amount of new subordinated notes (the “New Subordinated Notes”). The proceeds of the New Subordinated Notes will be used by the Tribe to retire certain of its existing debt. The Exchange Offer will be open to all qualifying holders of the 9 ¾% Senior Notes. The Authority expects to launch the Exchange Offer by November 18, 2011, and consummation of the restructuring is expected to occur in December 2011.

    The Forbearance and Support Agreement provides a framework under which the Authority will seek to restructure the 9 ¾% Senior Notes consistent with its long-term growth and development strategy. The Authority and the Tribe are pleased to be working with the Authority’s noteholders to reach an amicable restructuring of the Authority’s debt.

    Important Information about the Exchange Offer

    This press release is for informational purposes only, and is not an offer to sell or the solicitation of an offer to buy any New Senior Notes or New Subordinated Notes.

  95. Today Fidelity credited the principal but not the interest. In the past that has only happeened when a payment wissed not paid but the subsequently was. Also, “The Exchange Offer will be open to all qualifying holders of the 9 ¾% Senior Notes.” sugests that it would be exempt from registration using section 144. Which implys that non-qualified retail holders would have to be paid in full.

  96. The principal that Fidelity had credited this morning was just reversed.

  97. I guess no one on this board was one of the 60% of the biggest bond holders who agreed to the forebearance? Or if there is, he or she is staying mum.

  98. Please email me on any information or any joint venture bond holders want to take thanks i will be willing to do my part I am a bond holder

  99. Lance, your comment makes sense in view of the comments in the first paragraph of their 10/19 press release when they advised the new debt offering would be made “pursuant to exemptions from registration under the Securities Act.”

    When I read that release in late October, I was left with the impression that River Rock was going to do a private debt placement in order to pay off the bonds. When I saw for a second time that Fidelity had credited my account for the bond principal, I felt that was the case. Then Fidelity reversed the credit.

    I still suspect the small bondholders may get paid, especially in view of the 10/19 press release referring to a nearly $28 million private placement offering of senior subordinated notes. It may be there will be an unregistered $205 million debt offering which the major bond holders will accept, and the $28 million private placement of subordinated debt will be used to pay folks like us. We shall see. In any event, I suspect worst case is we end up holding newly issued debt, but at what interest rate?

  100. So far I am still being credited an interest payment 11-1-11 in my Option Express account, not reversed yet as reported with Fidelity. The maturity was reversed however.

  101. Okay my interest payment previously credited by Option Express has also been reversed now.

  102. There was a press release of third quarter earnings on 11/14. You can read it at this web site:

    http://phx.corporate-ir.net/phoenix.zhtml?c=147965&p=irol-news

    Interesting that the tribe continued to be paid their cash while the bondholders are left waiting. Essentially, nothing mentioned about the debt default other than the third quarter conference would not be held in view of the debt refinancing underway. Talk about trying to sweep that under the rug! No more Indian bonds for me. I hold bonds from one other tribal casino. When they mature, and hopefully get paid in full, I am out of Indian bonds, not because they are casino bonds, just that the Indian tribes seem to live by their own set of rules.

  103. Is anyone here taking River Rock up on their tender offer? I have spoken to Fidelity Investments as well as with the King Company (Phone: 212-269-5550) that is handling this for River Rock. It seems that if one accepts the tender off, a bunch of rights in the defaulted bond get waived. If 66 2/3% agree, then it takes effect. My interpretation is that if those protective covenants get waived, the remaining bondholders who have not accepted the tender offer have little leverage. If someone else here feels otherwise, please post.

    At this time Fidelity is telling me if I accept the tender offer by this Friday 12/1, as an incentive, I will receive the unpaid interest that was due on 11/1. Acceptance after that date would cause the loss of that interest. It seems like the small bond holders are getting the shaft here.

  104. Where is this information coming from that if the tender is accepted by 12-1 the interest will be paid? What is Fidelity basing it on in writing?

  105. I took River Rock up on their tender offer and consents on Friday 12/02. Thank you Ken for the alert.

    Here is a portion of the letter I received from Fidelity today:

    Tender/Consent Cutoff Date 12/04/11 Tender only Cutoff Date 12/16/11

    The CONSENT PAYMENT shall be, for each consent validly delivered on or prior to the expiration date, a cash amount equal to the accrued and unpaid interest on the principal amount of existing notes in respect of which such consent has been validly delivered up to, but not including, November 1, 2011.

    The CONSENT PREMIUM shall be, for each consent validly delivered on or prior to the consent date, a cash amount equal to the interest on the principal amount of existing notes computed at the rate of 9 3/4% per annum from, and including November 1, 2011 to, but not including the acceptance date. You must tender your notes by the consent date to be eligible to receive the consent premium.

    I think this legal crap means to receive the Consent Premium the cutoff is 12/04 and to receive the Consent Payment the cutoff is 12/16. That means you could still get the unpaid interest up to November 1 if you tender by 12/16.

    Hope this helps Jeffery and others.

  106. What a bunch of bull. On 12-2-11, Option Express had a proxy vote (for or against) posted in shareholder services online but no way to elect which new bond to exchange for. They were confused. I got this big packet of material from DF King the transfer agent, but that was not applicable because my bonds are held in the brokers name.

    I was told the deadline was extended to midnight December 7th however. Option Express finally figured out what to do and was given verbal instructions by me to exchange for the tax-free bonds on 12-6-11. So I should get the premium and payment or whatever.

    I think if your broker screws up and does not take your verbal instructions in time, and you forfeit an interest payment, you would have a good small claims case against the broker for the lost interest.

  107. Something is up, my broker Option Express is showing a different cusip but not the one for either old River Rock or either of the two new River Rock bonds.

    This new mysterious CUSIP is 76899AHE4 with a value of zero for now.

  108. River Rock issued the following press release today;

    December 21, 2011
    River Rock Entertainment Authority Announces Final Terms and Closing of its Exchange Offer and Consent Solicitation
    Relating to its 9¾% Senior Notes Due 2011. The offer to exchange its 9¾% Senior Notes due 2011 (the “Existing Notes”) expired at 12:00 Midnight (New York City time) on December 19, 2011 (the “Expiration Date”). As of the Expiration Date, the Authority had received
    tenders of an aggregate principal amount of Existing Notes of $196,393,000, which represents 98.20% of the
    total principal amount of outstanding Existing Notes.
    In settlement of the offer and consent solicitation, the Authority issued today (the “Exchange Date”)
    $189,924,000 in aggregate principal amount of New Notes (as defined below) and made cash payments totaling
    $18,626,625.07 to tendering holders. Of the aggregate principal amount of New Notes issued, the Authority
    issued $96,622,000 of new 9% Series A Senior Notes due 2018 (the “Series A Notes”) and $93,302,000 of new
    8% tax-exempt Series B Senior Notes due 2018 (the “Series B Notes,” and together with the Series A Notes, the
    “New Notes”). The Authority paid $6,342,374.93 as principal pay down and $126,625.07 in lieu of odd lots
    (New Notes in denominations of less than $1,000) to holders who tendered $50,000 or more principal amount
    of Existing Notes. In addition, the Authority paid a total of $12,157,625.07 to holders who delivered a consent
    to the proposed amendments to the indenture, dated as of November 7, 2003, governing the Existing Notes and
    related waiver. In connection with the closing of the offer and consent solicitation, the Authority also sold to
    Merrill, Lynch, Pierce, Fenner & Smith, Incorporated (“Merrill Lynch”) $27,600,000 in aggregate principal
    amount of 6.5% Senior Subordinated Notes due 2019 (the “Subordinated Notes”), the proceeds of which were
    applied to repay an equal amount of notes of the Tribe that were held by Merrill.
    Holders who tendered $50,000 or more of Existing Notes accepted for exchange received, for each $1,000 of Existing Notes tendered and accepted for exchange, $962.00 in principal amount of New Notes,$38.00 in cash principal payment and $62.29 in cash consent consideration (reduced to $48.75 for holders who tendered after December 7, 2011). Holders with odd lots received an additional cash payment in lieu thereof.

    Holders who tendered less than $50,000 of Existing Notes accepted for exchange received, for each $1,000 of
    Existing Notes tendered and accepted for exchange, $1,000 in principal amount of New Notes and $62.29 in
    cash consent consideration (reduced to $48.75 for holders who tendered after December 7, 2011).

    After the closing of the offer and consent solicitation, $3,607,000 in principal amount of Existing Notes which
    were not tendered remain outstanding. Such Existing Notes are subject to the First Supplemental Indenture (and related amended collateral documents) and the rights of the holders of New Notes and of Subordinated Notes.
    The Authority’s offer and consent solicitation was made under Section 3(a)(9) of the Securities Act of
    1933, as amended, pursuant to an offering circular and consent solicitation statement and a related letter of
    transmittal and consent (collectively and, together with any amendment thereto, the “Offer Documents”), which
    were furnished to the holders of the Existing Notes. The Offer Documents set forth the complete terms of the
    offer and consent solicitation.

    FOR ADDITIONAL INFORMATION
    Contact:
    Don Duffy
    ICR, LLC
    203-682-8215

  109. Just out of curiosity, does any know what will happen to the 1.8% of the outstanding bonds that were not tendered?

  110. Does anyone know the percent of outstanding shares they plan to buy back in this lottery?

    Name of Security:RIVER ROCK ENTERTAINMENT
    AUTHORITY

    CUSIP: 768369AF7

    Re: Partial call lottery

    Please be advised,

    The bond position you are currently holding is subject to an upcoming partial call lottery. If your position is sold before the lottery is completed,
    The account holder will be responsible for any losses due to this corporate action event. Typically, the lottery will be completed within two business days.
    Called bonds will be segregated from your original position.

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