"Although the steep downturn in the U.S. gaming industry that began in 2008 appears to be easing for the time being, many mid-market gaming companies are still encountering difficulties servicing their debt as consumer spending slowly creeps back. In 2009, the Restructuring Review ran a two-part series on the strategies available to gaming companies seeking to restructure their debts, and the challenges facing creditors who must choose between writing down their investments or attempting to foreclose on their collateral. This article examines additional and unique challenges facing creditors attempting to restructure debt issued by tribal gaming entities.

Creditors negotiating with their borrowers often use several leverage points to influence a borrower who is either in, or is facing, a default. Creditors can use the threat of foreclosure to influence negotiations if they are secured by the borrower's collateral. Creditors can also use the threat of an involuntary bankruptcy petition filed against the borrower in order to strengthen their negotiating position. These creditor/borrower negotiations typically lead to a "sharing of the pain," whereby creditors often agree to de-lever the company by writing down a piece of their debt and in exchange take equity in the reorganized company with the hope that the borrower will better be able to service its healthy balance sheet.

These creditor leverage points, however, are often not available in the context of tribal-owned gaming entities, limiting the options for borrowers and lenders/creditors. Creditors cannot threaten an involuntary bankruptcy with respect to sovereign tribal entities. The ability of a creditor to take an equity stake in a tribal entity or to foreclose on all or some of a tribal entities' property may be severely constrained by federal law. This article discusses these constraints. Additionally, we examine the regulatory schemes governing tribal entities and the leverage points that remain for lenders to tribal entities, such as the potential for reducing access to credit if the entities do not work closely with lenders to consensually restructure debt."

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Scott J. Greenberg and Jeffrey H. Taub: When tribal gaming goes sour... rights & remedies in an unclear legal environment (Lexology 4/11)
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