Changes Expected on Mohegan’s $1.2B HY Bond After Investor Pushback on 2L Out of Covenant Concerns, Gaming Sector and ESG Risk 

A $1.2 billion high-yield bond for Mohegan Gaming & Entertainment, which will refinance its $1.75 billion 2026 senior secured notes, is expected to be changed after investors pushed back on terms to its $600 million second lien tranche and expressed concern over the gaming sector and ESG risk, according to sources.

While the first lien tranche was over book size on March 25, the second lien was around two-thirds full on March 24, the sources added. Investors cited the second lien’s capacity to incur additional debt among their issues with the deal, noting that the company expected a new structure to fill up the book. Mohegan’s bond is now expected to come with changes as soon as today, sources said.

The Connecticut-based gaming operator launched a $600 million first lien five-year secured note in the 8.25% area and $600 million six-year secured note at 11% to 11.25% last week via lead Deutsche Bank to refinance its $1.175 billion 2026 note. Books were expected to close on March 21, but final pricing has not yet come, sources said.

As part of an analysis of Mohegan’s primary offering, Octus, formerly Reorg, noted that Mohegan’s core operating state of Connecticut has above-average median household income and home prices. According to the offering memorandum, Mohegan benefits from barriers to entry posed by regulation and has a 58% market share, which should materialize in continued free cash flow.

Mohegan is party to an arrangement with Connecticut providing exclusive rights to operate casino games in the state, in exchange for a payment of a 25% slot contribution to the state. Foxwoods’ Mashantucket Pequot Tribe has a similar agreement. No other entity is statutorily allowed to operate casino games in the state. Mohegan’s land-based slot market share (based on slot revenue) is 58%.

However, one high-yield bond investor noted that the impact of the gaming sector’s expansion in the Northeast has negatively affected Mohegan business. Eventually, the investor said, Mohegan will get into trouble since its cost base will never come down, but gaming revenues will.

The amount of commercial and tribal casinos operating from Maine to Maryland increased by almost 50% from 2010 to 2018, Las Vegas Review-Journal reported. Gross gaming revenue over the same period rose by about 35%.

New York state is expected to award up to three licenses for downstate casinos by Dec. 31. Mohegan is one of the bidders, along with the Soloviev Group. If Mohegan is unsuccessful, its Connecticut and Pennsylvania properties may face a new competitive threat.

However, Mohegan Sun and Mohegan Pennsylvania are both about 2.5 hours from Manhattan. Octus believes that if a license is awarded by Dec. 31, a new casino would probably not be built and opened until late 2026 (at the earliest).

The casino’s novelty will probably result in market share loss for competitors in the greater New York City area, but it remains to be seen whether the market share loss will be permanent, especially for assets that are over 2 hours from New York City.

A capital structure of Mohegan can be seen below:
 

Moody’s Investors Service, S&P Global Ratings and Fitch Ratings hold Caa1/B-/B ratings on Mohegan.

Mohegan’s 8% 2026 notes were last trading in the secondary on March 26 at 99.56 to yield 8.52%, according to sources.

A list of Mohegan’s business development company creditors can be found in Octus’ BDC Database HERE.

Deutsche Bank declined to comment. Mohegan Gaming did not respond to requests for comment.