We currently assess the Authority’s liquidity profile as weak. It has limited sources of liquidity, consisting only of modest excess cash balances and cash generated from operations. There is no revolving credit facility in the capital structure. We forecast that the casino will generate a level of EBITDAM that meets our estimate of fixed charges in 2012. While we believe excess cash on hand does provide some cushion to meet its near term obligations, we believe it is unlikely the Authority will be able to meet its repayment obligations in 2014, and it is unclear whether it will be able to access the capital markets to refinance these obligations.
Additionally, our assessment of the Authority’s liquidity profile as weak reflects the ongoing case of Sharp Image Gaming Inc. v. Shingle Springs Band of Miwok Indians. The trial has advanced; in December 2011, the jury awarded Sharp Image Gaming Inc. $30.4 million. The Tribe has appealed the judgment and secured an order from the El Dorado County Superior Court relieving the Tribe of any obligation to post a bond pending appeal. A final judgment in excess of $10 million could result in an event of default under the bond indenture.
Our negative rating outlook reflects our belief that it is unlikely the Authority can generate enough cash flow to support its current capital structure over the intermediate term. There is some excess cash on the balance sheet, which could support debt-service payments over the near term, if needed. However, the failure to significantly increase EBITDAM could lead the Authority to restructure some of its debt obligations. In addition, the Sharp Image Gaming Inc. case could result in an event of default under the bond indenture in the near term. A revision of the rating outlook to stable or a higher rating could be considered if EBITDAM generation over the next few years is substantially greater than we expect, resulting in meaningful positive free cash flow generation that could support the current capital structure and facilitate a successful refinancing of its obligations. Also, given the uncertainty about the final outcome of the Sharp Image Gaming case, ratings upside would be conditioned on a favorable resolution.
Related Criteria And Research
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008