Are Indian Casino Bonds Worthless?

Professor I. Nelson Rose penned a very interesting article for the December issue of Casino Enterprise Management magazine. The article was titled, "Indian Casino Bonds - A House of Cards?" The current economy is showing that casino gaming is not recession-proof and also showing that even tribal casinos aren't recession-proof. This brings up the point of the article that inquires about what happens if a tribal casino goes kaput?

Tribes are sovereign nations and the US Supreme Court has stated that tribes can not be sued without their consent. So what happens when a tribal casino that is financed with loans or bonds is unable to service that debt. What options do the creditors have? It is quite possible that there may be little they can do other than moral suasion.

With a Las Vegas casino in this circumstance, creditors could force the casino into bankruptcy court, where potentially the creditors operate the casino until final disposition of the case. That can't happen with tribal casinos as the Indian Gaming Regulatory Act mandates that a tribal casino must be owned by a tribe. Therefore creditors likely can't take over a debtor tribal casino in default.

This potential situation came to light when it was announced that the Foxwoods casino was in danger of defaulting on its multi-billion dollar loans. If, for the sake of argument, such loans to tribes were basically impossible to enforce by seizing the casino property (the object of the investment), the there is a whole lot of money lent to tribes that there may be a very difficult time collecting. Along with that, there may be quite a few lenders sweating out this economy hoping that they don't have to write down billions in loans and bonds.