Fitch Ratings, a leading global rating agency providing credit markets with independent, timely and prospective credit opinions, has downgraded the issuer ratings assigned to the Seminole Tribe of Florida to ‘BB’ from ‘BBB-‘. The downgrade reflects the Seminoles’ inability to resolve the tribal government's long track record of weak internal controls with respect to financial and accounting practices, which ultimately resulted in the June 3, 2010 issuance of a Notice of Violation (NOV) from the National Indian Gaming Commission. Gaming division bonds, series 2005A & B are downgraded to 'BB+' from 'BBB'.

Fitch believes that the violations can be resolved without a significant financial impact to the tribe, and that there is a low likelihood of NIGC issuing a temporary closure order following on the NOV. However, Fitch believes the inability to correct internal control deficiencies since the NIGC began its review in 2005 reflects weak governance practices that are inconsistent with an investment grade rating. However, Fitch adds that debt agreements require that payments for debt obligations are paid prior to any distributions to the tribe, and there are no material weaknesses of internal controls at the gaming enterprise.

A return to an investment grade credit profile will depend upon the tribe demonstrating a considerable track record of bolstering its financial controls and adhering to regulatory guidelines and its own ordinances. Fitch believes the nature of the improvement would need to be sustained, which limits positive rating action in the near-term and supports the stable rating outlook.

The 'BB' issuer rating and the Stable Outlook are supported by the strong cash flows and the geographic diversification of the gaming enterprise, whose operations weathered the recession well relative to other gaming credits in Fitch's rated portfolio. The rating and the Outlook also take into account the Class III state gaming compact that was ratified by the Florida legislature in April 2010 and is expected to be recorded in the Federal Register within approximately a week.

The 2010 compact confirms the tribe's ability to operate table games at most of its facilities but limits the authorized period for table games to five years, after which the tribe has to seek reauthorization. The revenue share provision of the 2010 compact relative to the 2007 compact under which the tribe had been operating are not substantially different. Importantly, the Tampa Hard Rock, which generates roughly half of the EBITDA for the gaming enterprise, should not see considerable slots competition at least until 2030, which Fitch views as a positive.

Fitch expects that the tribe's Broward County operations (including its two casinos in Hollywood and one in Coconut Creek) will continue to be pressured by the developing competition stemming from the pari-mutuels in the Broward and Miami-Dade Counties. With the tax on slot machines reduced to 35% from 50% effective July 1, 2010, Fitch believes that the pari-mutuels could ramp up their investment in their slot operations, which is already being felt by the Seminole facilities in the area, but also believes that the competitive pressures on the enterprise level will be offset somewhat by the tribe’s ability to further develop its highly successful Tampa facility and to further expand table games across its casinos. (E-06.30.10)

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