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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________________________________
FORM 10-Q
_____________________________________
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 033-80655
__________________________________________
MOHEGAN TRIBAL GAMING AUTHORITY
(Exact name of registrant as specified in its charter)
__________________________________________
| | | | | | | | | | | | | | |
Not Applicable | | 06-1436334 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
| |
One Mohegan Sun Boulevard, | Uncasville, | CT | | 06382 |
(Address of principal executive offices) | | (Zip Code) |
(860) 862-8000
(Registrant’s telephone number, including area code)
___________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
None | | None | | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒*
| | | | | |
* | The registrant is a voluntary filer of reports required to be filed by certain companies under Sections 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required during the preceding 12 months had it been subject to such filing requirements. |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-Q
| | | | | | | | |
| | Page Number |
PART I. | | |
Item 1. | | |
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|
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| | |
Item 2. | | |
| | |
Item 3. | | |
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Item 4. | | |
| | |
PART II. | | |
| | |
Item 1. | | |
| | |
Item 1A. | | |
| | |
Item 6. | | |
| | |
Signatures. | | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| | | | | | | | | | | |
| March 31, 2021 | | September 30, 2020 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 127,772 | | | $ | 112,665 | |
Restricted cash and cash equivalents | 3,759 | | | 934 | |
Accounts receivable, net of allowance for doubtful accounts of $17,960 and $16,313, respectively | 48,915 | | | 43,602 | |
Inventories | 17,389 | | | 16,773 | |
Due from Ontario Lottery and Gaming Corporation | 6,086 | | | 2,854 | |
Casino Operating and Services Agreement customer contract asset | 17,894 | | | 24,843 | |
Other current assets | 50,713 | | | 46,362 | |
Total current assets | 272,528 | | | 248,033 | |
Restricted cash and cash equivalents | 18,774 | | | 28,470 | |
Property and equipment, net | 1,573,632 | | | 1,498,047 | |
Right-of-use operating lease assets | 447,667 | | | 408,434 | |
Other intangible assets, net | 328,810 | | | 327,841 | |
Casino Operating and Services Agreement customer contract asset, net of current portion | 114,133 | | | 104,405 | |
Notes receivable | 2,514 | | | 2,514 | |
Other assets, net | 96,133 | | | 89,444 | |
Total assets | $ | 2,854,191 | | | $ | 2,707,188 | |
LIABILITIES AND CAPITAL | | | |
Current liabilities: | | | |
Current portion of long-term debt | $ | 49,555 | | | $ | 75,355 | |
Current portion of finance lease obligations | 4,165 | | | 2,802 | |
Current portion of right-of-use operating lease obligations | 32,739 | | | 19,939 | |
Trade payables | 25,311 | | | 22,469 | |
Accrued payroll | 37,948 | | | 32,705 | |
Construction payables | 38,827 | | | 40,932 | |
Accrued interest payable | 36,316 | | | 26,349 | |
Due to Ontario Lottery and Gaming Corporation | 31,360 | | | 25,405 | |
Other current liabilities | 156,932 | | | 157,910 | |
Total current liabilities | 413,153 | | | 403,866 | |
Long-term debt, net of current portion | 1,973,529 | | | 1,894,655 | |
Finance lease obligations, net of current portion | 107,475 | | | 28,209 | |
Right-of-use operating lease obligations, net of current portion | 452,993 | | | 411,698 | |
Accrued payroll | 3,529 | | | 3,978 | |
Other long-term liabilities | 35,620 | | | 32,771 | |
Total liabilities | 2,986,299 | | | 2,775,177 | |
Commitments and Contingencies | | | |
Capital: | | | |
Retained deficit | (142,563) | | | (75,692) | |
Accumulated other comprehensive income | 9,291 | | | 223 | |
Total capital attributable to Mohegan Tribal Gaming Authority | (133,272) | | | (75,469) | |
Non-controlling interests | 1,164 | | | 7,480 | |
Total capital | (132,108) | | | (67,989) | |
Total liabilities and capital | $ | 2,854,191 | | | $ | 2,707,188 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the | | For the | | For the | | For the |
| Three Months Ended | | Three Months Ended | | Six Months Ended | | Six Months Ended |
| March 31, 2021 | | March 31, 2020 | | March 31, 2021 | | March 31, 2020 |
Revenues: | | | | | | | |
Gaming | $ | 209,184 | | | $ | 215,994 | | | $ | 382,385 | | | $ | 480,263 | |
Food and beverage | 13,343 | | | 37,557 | | | 24,383 | | | 88,089 | |
Hotel | 17,170 | | | 20,115 | | | 33,694 | | | 47,704 | |
Retail, entertainment and other | 38,931 | | | 41,035 | | | 68,947 | | | 97,697 | |
Net revenues | 278,628 | | | 314,701 | | | 509,409 | | | 713,753 | |
Operating costs and expenses: | | | | | | | |
Gaming, including related party transactions of $808, $755, $1,607 and $1,510, respectively | 108,567 | | | 131,178 | | | 207,066 | | | 288,366 | |
Food and beverage | 11,610 | | | 32,392 | | | 23,096 | | | 74,085 | |
Hotel, including related party transactions of $2,161, $2,161, $4,322 and $4,322, respectively | 8,189 | | | 10,473 | | | 16,981 | | | 22,315 | |
Retail, entertainment and other | 6,843 | | | 16,166 | | | 14,136 | | | 41,152 | |
Advertising, general and administrative, including related party transactions of $6,097, $9,046, $16,277 and $18,612, respectively | 49,790 | | | 62,882 | | | 98,504 | | | 137,096 | |
Corporate, including related party transactions of $1,516, $2,128, $3,264 and $4,381, respectively | 12,887 | | | 10,169 | | | 23,992 | | | 24,259 | |
Depreciation and amortization | 26,388 | | | 27,826 | | | 52,362 | | | 56,370 | |
Impairment of Mohegan Sun Pocono's intangible assets | — | | | 126,596 | | | — | | | 126,596 | |
Other, net | 9,498 | | | 3,274 | | | 17,806 | | | 6,344 | |
Total operating costs and expenses | 233,772 | | | 420,956 | | | 453,943 | | | 776,583 | |
Income (loss) from operations | 44,856 | | | (106,255) | | | 55,466 | | | (62,830) | |
Other income (expense): | | | | | | | |
Interest income | 6 | | | 528 | | | 4 | | | 1,279 | |
Interest expense, net of capitalized interest | (42,442) | | | (30,996) | | | (84,327) | | | (66,352) | |
Loss on modification and early extinguishment of debt | (23,886) | | | — | | | (23,958) | | | — | |
Other, net | 2,269 | | | (2,432) | | | 3,292 | | | (3,024) | |
Total other expense | (64,053) | | | (32,900) | | | (104,989) | | | (68,097) | |
Loss before income tax | (19,197) | | | (139,155) | | | (49,523) | | | (130,927) | |
Income tax benefit (provision) | 3,224 | | | (876) | | | 6,789 | | | 320 | |
Net loss | (15,973) | | | (140,031) | | | (42,734) | | | (130,607) | |
(Income) loss attributable to non-controlling interests | (16) | | | (63) | | | 124 | | | (93) | |
Net loss attributable to Mohegan Tribal Gaming Authority | (15,989) | | | (140,094) | | | (42,610) | | | (130,700) | |
Comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustment | (10,533) | | | (18,581) | | | 10,444 | | | (7,164) | |
Other comprehensive income (loss) | (10,533) | | | (18,581) | | | 10,444 | | | (7,164) | |
Other comprehensive (income) loss attributable to non-controlling interests | — | | | 739 | | | (1,376) | | | 208 | |
Other comprehensive income (loss) attributable to Mohegan Tribal Gaming Authority | (10,533) | | | (17,842) | | | 9,068 | | | (6,956) | |
Comprehensive loss attributable to Mohegan Tribal Gaming Authority | $ | (26,522) | | | $ | (157,936) | | | $ | (33,542) | | | $ | (137,656) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retained Earnings (Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Total Capital Attributable to Mohegan Tribal Gaming Authority | | Non-controlling Interests | | Total Capital |
Balance, December 31, 2020 | $ | (114,574) | | | $ | 19,824 | | | $ | (94,750) | | | $ | 1,148 | | | $ | (93,602) | |
Net income (loss) | (15,989) | | | — | | | (15,989) | | | 16 | | | (15,973) | |
Foreign currency translation adjustment | — | | | (10,533) | | | (10,533) | | | — | | | (10,533) | |
Distributions to Mohegan Tribe | (12,000) | | | — | | | (12,000) | | | — | | | (12,000) | |
Balance, March 31, 2021 | $ | (142,563) | | | $ | 9,291 | | | $ | (133,272) | | | $ | 1,164 | | | $ | (132,108) | |
Balance, September 30, 2020 | $ | (75,692) | | | $ | 223 | | | $ | (75,469) | | | $ | 7,480 | | | $ | (67,989) | |
Net loss | (42,610) | | | — | | | (42,610) | | | (124) | | | (42,734) | |
Foreign currency translation adjustment | — | | | 9,068 | | | 9,068 | | | 1,376 | | | 10,444 | |
Distributions to Mohegan Tribe | (24,000) | | | — | | | (24,000) | | | — | | | (24,000) | |
Distributions to Salishan Company, LLC related to the Cowlitz Project | (261) | | | — | | | (261) | | | — | | | (261) | |
Other | — | | | — | | | — | | | (7,568) | | | (7,568) | |
Balance, March 31, 2021 | $ | (142,563) | | | $ | 9,291 | | | $ | (133,272) | | | $ | 1,164 | | | $ | (132,108) | |
| | | | | | | | | |
Balance, December 31, 2019 | $ | 134,205 | | | $ | 4,253 | | | $ | 138,458 | | | $ | 7,503 | | | $ | 145,961 | |
Net income (loss) | (140,094) | | | — | | | (140,094) | | | 63 | | | (140,031) | |
Foreign currency translation adjustment | — | | | (17,842) | | | (17,842) | | | (739) | | | (18,581) | |
Distributions to Mohegan Tribe | (12,000) | | | — | | | (12,000) | | | — | | | (12,000) | |
Distributions to Salishan Company, LLC related to the Cowlitz Project | (100) | | | — | | | (100) | | | — | | | (100) | |
Balance, March 31, 2020 | $ | (17,989) | | | $ | (13,589) | | | $ | (31,578) | | | $ | 6,827 | | | $ | (24,751) | |
Balance, September 30, 2019 | $ | 137,124 | | | $ | (6,633) | | | $ | 130,491 | | | $ | 6,942 | | | $ | 137,433 | |
Net income (loss) | (130,700) | | | — | | | (130,700) | | | 93 | | | (130,607) | |
Foreign currency translation adjustment | — | | | (6,956) | | | (6,956) | | | (208) | | | (7,164) | |
Distributions to Mohegan Tribe | (24,000) | | | — | | | (24,000) | | | — | | | (24,000) | |
Distributions to Salishan Company, LLC related to the Cowlitz Project | (413) | | | — | | | (413) | | | — | | | (413) | |
Balance, March 31, 2020 | $ | (17,989) | | | $ | (13,589) | | | $ | (31,578) | | | $ | 6,827 | | | $ | (24,751) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
| | | | | | | | | | | |
| For the | | For the |
| Six Months Ended | | Six Months Ended |
| March 31, 2021 | | March 31, 2020 |
Cash flows provided by (used in) operating activities: | | | |
Net loss | $ | (42,734) | | | $ | (130,607) | |
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities: | | | |
Depreciation and amortization | 52,362 | | | 56,370 | |
Non-cash operating lease expense | 6,208 | | | 6,403 | |
Loss on modification and early extinguishment of debt | 23,725 | | | — | |
Accretion of discounts | 627 | | | 584 | |
Amortization of discounts and debt issuance costs | 11,182 | | | 9,256 | |
Provision for losses on receivables | 2,642 | | | 1,977 | |
Impairment of Mohegan Sun Pocono's intangible assets | — | | | 126,596 | |
Deferred income taxes | (6,989) | | | (484) | |
Other, net | (5,917) | | | 1,063 | |
Changes in operating assets and liabilities, net of effect of the MGE Niagara Resorts acquisition: | | | |
Accounts receivable | (7,457) | | | 13,057 | |
Inventories | (434) | | | 1,297 | |
Due from Ontario Lottery and Gaming Corporation | (3,058) | | | 1,910 | |
Casino Operating and Services Agreement customer contract asset | 5,111 | | | (76,290) | |
Other assets | 691 | | | 8,847 | |
Trade payables | 1,982 | | | 10,755 | |
Accrued interest | 9,931 | | | (55) | |
Due to Ontario Lottery and Gaming Corporation | 4,316 | | | 1,868 | |
Operating lease liabilities | 8,282 | | | (3,861) | |
Other liabilities | 6,721 | | | (45,549) | |
Net cash flows provided by (used in) operating activities | 67,191 | | | (16,863) | |
Cash flows used in investing activities: | | | |
Purchases of property and equipment | (36,319) | | | (54,630) | |
Acquisition of the MGE Niagara Resorts, net of cash acquired | — | | | (1,666) | |
Investment in Mohegan Hotel Holding, LLC | — | | | (10,750) | |
Other, net | 790 | | | (1,172) | |
Net cash flows used in investing activities | (35,529) | | | (68,218) | |
Cash flows provided by (used in) financing activities: | | | |
New senior secured credit facility borrowings - revolving and line of credit | 311,764 | | | — | |
New senior secured credit facility repayments - revolving and line of credit | (185,749) | | | — | |
Prior senior secured credit facility borrowings - revolving and line of credit | 156,287 | | | 665,725 | |
Prior senior secured credit facility repayments - revolving and line of credit | (353,287) | | | (520,725) | |
Prior senior secured credit facility repayments - term loans A and B | (1,056,061) | | | (26,590) | |
Proceeds from Main Street term loan facility, net of discounts | 48,108 | | | — | |
Repayment of Main Street term loan facility | (50,000) | | | — | |
Proceeds from issuance of senior secured notes | 1,175,000 | | | — | |
MGE Niagara Resorts credit facility borrowings - revolving and line of credit | — | | | 77,537 | |
MGE Niagara Resorts credit facility repayments - revolving and line of credit | — | | | (51,110) | |
MGE Niagara Resorts credit facility repayments - term loan | (1,970) | | | (1,848) | |
Repayment of Mohegan Tribe subordinated loan | (5,000) | | | — | |
Other repayments | (14,240) | | | (11,617) | |
Payments on finance lease obligations | (536) | | | (828) | |
Distributions to Mohegan Tribe | (24,000) | | | (24,000) | |
Distributions to Salishan Company, LLC related to the Cowlitz Project | (261) | | | (413) | |
Payments of financing fees | (24,082) | | | — | |
| | | | | | | | | | | |
Other, net | (1,000) | | | (1,527) | |
Net cash flows provided by (used in) financing activities | (25,027) | | | 104,604 | |
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents | 6,635 | | | 19,523 | |
Effect of exchange rate on cash, cash equivalents, restricted cash and restricted cash equivalents | 1,601 | | | (3,567) | |
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | 142,069 | | | 280,729 | |
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | 150,305 | | | $ | 296,685 | |
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents to the condensed consolidated balance sheets: | | | |
Cash and cash equivalents | $ | 127,772 | | | $ | 184,868 | |
Restricted cash and cash equivalents, current | 3,759 | | | 1,707 | |
Restricted cash and cash equivalents, non-current | 18,774 | | | 110,110 | |
Cash, cash equivalents, restricted cash and restricted cash equivalents | $ | 150,305 | | | $ | 296,685 | |
Supplemental disclosures: | | | |
Cash paid for interest | $ | 63,195 | | | $ | 61,583 | |
Non-cash transactions: | | | |
Right-of-use operating lease assets | $ | 24,740 | | | $ | 360,257 | |
Right-of-use operating lease obligations | $ | 24,082 | | | $ | 360,402 | |
Finance lease assets and obligations | $ | 78,682 | | | $ | 2,206 | |
Construction payables | $ | 35,974 | | | $ | 45,395 | |
New senior secured credit facility reductions | $ | 3,000 | | | $ | — | |
Prior senior secured credit facility reductions | $ | — | | | $ | 10,514 | |
MGE Niagara Resorts - derecognition of build-to-suit asset and liability | $ | — | | | $ | 90,675 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION:
Organization
The Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe”) established the Mohegan Tribal Gaming Authority in July 1995 with the exclusive authority to conduct and regulate gaming activities for the Mohegan Tribe on tribal lands and the non-exclusive authority to conduct such activities elsewhere. The Mohegan Tribe is a sovereign Indian nation with independent legal jurisdiction over its people and land. Like other sovereign governments, the Mohegan Tribe and its entities, including the Mohegan Tribal Gaming Authority, are generally not subject to federal, state or local income taxes. However, MGE Niagara Entertainment Inc. (“MGE Niagara”), a wholly-owned subsidiary, is subject to tax in Ontario, Canada, and certain non-tribal entities are subject to state or local income taxes in the United States.
The Mohegan Tribal Gaming Authority d/b/a Mohegan Gaming & Entertainment (the “Company”) is primarily engaged in the ownership, operation and development of integrated entertainment facilities, both domestically and internationally. This ownership, operation and development includes the following: (i) ownership and operation of Mohegan Sun, a gaming and entertainment complex located on an approximately 196-acre site in Uncasville, Connecticut, (ii) ownership and operation of Mohegan Sun Pocono, a gaming and entertainment facility located on an approximately 400-acre site in Plains Township, Pennsylvania, (iii) operation of the Niagara Fallsview Casino Resort, Casino Niagara and the 5,000-seat Niagara Falls Entertainment Centre under a Casino Operating and Services Agreement (the “Casino Operating and Services Agreement”), all in Niagara Falls, Canada (collectively, the “MGE Niagara Resorts”), (iv) development and management of ilani Casino Resort in Clark County, Washington, and development rights to any future development at ilani Casino Resort, (v) management of Resorts Casino Hotel in Atlantic City, New Jersey and ownership of 10% of the casino’s holding company and its subsidiaries, including those conducting or licensing online gaming and retail sports wagering in New Jersey, (vi) management of Paragon Casino Resort in Marksville, Louisiana, (vii) operation of the Mohegan Sun Casino at Virgin Hotels Las Vegas (“Mohegan Sun Las Vegas”) in Las Vegas, Nevada, (viii) development and construction of an integrated resort and casino project to be located adjacent to the Incheon International Airport in South Korea and (ix) development and construction of an integrated resort and casino project to be located near Athens, Greece.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and the United States federal government declared it a national emergency. The spread of COVID-19 has affected most segments of the global economy, including the Company’s operations. In March 2020, the Company temporarily suspended operations at its North American owned, operated and managed properties to ensure the health and safety of its employees, guests and the surrounding communities in which the Company operates, consistent with directives from various government bodies. Following these closures, the Company reopened its properties as follows: (i) Paragon Casino Resort on May 20, 2020, (ii) ilani Casino Resort on May 28, 2020, (iii) Mohegan Sun on June 1, 2020, (iv) Mohegan Sun Pocono on June 22, 2020 and (v) Resorts Casino Hotel on July 2, 2020. Mohegan Sun Pocono was again temporarily closed from December 12, 2020 through January 3, 2021 due to a resurgence of COVID-19 at that time. In addition, Mohegan Sun Las Vegas opened to the public on March 25, 2021 under capacity restrictions due to COVID-19. As of the date of the filing of this Quarterly Report on Form 10-Q, the MGE Niagara Resorts remain temporarily closed.
The Company cannot predict when the MGE Niagara Resorts will be able to reopen or the conditions upon which such reopening may occur, and while the Company's reopened properties have experienced some level of continued business disruption, the Company expects that these disruptions will gradually dissipate, and remains confident in its ability to mitigate the impact of any such disruption through expense management. The impact of COVID-19 on the Company's operations has been significant, though the full extent of its impact will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of COVID-19 or the extent of any resurgence of COVID-19, the manner in which the Company’s guests, suppliers and other third parties respond to COVID-19, including the perception of safety and health measures taken by the Company, new information which may emerge concerning the severity of COVID-19 and the actions to contain or treat it, as well as general economic conditions and consumer confidence. Accordingly, the Company cannot reasonably estimate the extent to which COVID-19 will further impact its future financial condition, results of operations and cash flows.
The Company could experience other potential adverse impacts as a result of COVID-19, including, but not limited to, charges from further adjustments to the carrying value of its intangible assets, as well as other long-lived asset impairment
charges. Actual results may differ materially from the Company’s current estimates as the scope of COVID-19 evolves, depending largely, but not exclusively, on the duration and extent of the Company’s business disruptions.
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying condensed consolidated financial statements are issued. As further discussed within Note 3, on January 26, 2021, the Company (i) entered into a new credit agreement which, among other things, provided for an approximately $262.9 million senior secured revolving credit facility, removed the financial covenants (other than a minimum liquidity covenant) applicable for the fiscal quarter ended December 31, 2020, modified the financial covenants applicable for the fiscal quarters ending March 31, 2021 and thereafter and extended the maturity date of the new senior secured revolving credit facility to April 14, 2023 and (ii) issued approximately $1.2 billion of new senior secured notes due February 1, 2026. The proceeds from these transactions were used to refinance certain existing indebtedness of the Company (refer to Note 3). Based on the aforementioned and the Company’s existing resources, there are no current indicators of substantial doubt as previously disclosed in the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2020, and the Company expects to have sufficient resources to meet its existing obligations for the next twelve months and to remain in compliance with its financial covenants.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by US GAAP. All adjustments, including normal recurring accruals and adjustments, necessary for a fair statement of the Company's operating results for the interim period, have been included.
The Company’s results for the three months and six months ended March 31, 2021 are not indicative of operating results expected for the entire fiscal year, particularly given the impact of COVID-19 as discussed above.
The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020. The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.
Mohegan Sun Las Vegas
The Company owns 100% of MGNV, LLC (“MGNV”), which was formed to operate Mohegan Sun Las Vegas. In July 2019, MGNV entered into a casino lease agreement with JC Hospitality, LLC, which developed the former Hard Rock Hotel and Casino in Las Vegas, Nevada, into an integrated resort under the Virgin Hotels brand, which includes Mohegan Sun Las Vegas. Pursuant to the lease agreement, MGNV leases and operates the more than 60,000-square-foot gaming facility at the integrated resort. On March 25, 2021, Mohegan Sun Las Vegas opened to the public. During the initial term of this 20-year lease agreement, the Company is required to make annual minimum rent payments of $9.0 million, subject to escalators which could result in annual minimum rent payments of up to $15.0 million, plus consumer price index inflators and additional common area maintenance fees. Annual minimum rent payments commence upon the first anniversary of the Lease Commencement Date, as defined under the lease agreement, and continue until the end of the lease term, which concludes in 2041, subject to additional extensions at MGNV's option. This lease is classified as a finance lease. Accordingly, the Company recorded a related right-of-use (“ROU”) finance lease asset and liability.
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
Revenue Disaggregation
The Company is primarily engaged in the ownership, operation and development of integrated entertainment facilities both domestically and internationally. The Company’s current wholly-owned operations are primarily focused within Connecticut and Pennsylvania. The Company also currently operates and manages other gaming facilities elsewhere within the United States and Canada. The Company generates revenues by providing the following types of goods and services: gaming, food and beverage, hotel, retail, entertainment and other and management and development.
Revenue disaggregation by geographic location and revenue type was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2021 |
| Connecticut | | Pennsylvania | | Nevada | | Canada | | |
| (Mohegan Sun) | | (Mohegan Sun Pocono) | | (Mohegan Sun Las Vegas) (1) | | (MGE Niagara Resorts) (2) | | Other |
Gaming | $ | 145,965 | | | $ | 49,019 | | | $ | 1,515 | | | $ | 12,685 | | | $ | — | |
Food and beverage | 12,047 | | | 1,132 | | | 177 | | | — | | | (13) | |
Hotel | 16,088 | | | 1,093 | | | — | | | — | | | (11) | |
Retail, entertainment and other | 14,922 | | | 1,132 | | | 23 | | | 1,131 | | | 2,581 | |
Management and development | — | | | — | | | — | | | — | | | 18,594 | |
Net revenues | $ | 189,022 | | | $ | 52,376 | | | $ | 1,715 | | | $ | 13,816 | | | $ | 21,151 | |
________(1)Mohegan Sun Las Vegas opened to the public on March 25, 2021.
(2)Gaming revenues represent revenues earned under the Casino Operating and Services Agreement.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2020 |
| Connecticut | | Pennsylvania | | Nevada | | Canada | | |
| (Mohegan Sun) | | (Mohegan Sun Pocono) | | (Mohegan Sun Las Vegas) (1) | | (MGE Niagara Resorts) (2) | | Other |
Gaming | $ | 124,721 | | | $ | 45,409 | | | $ | — | | | $ | 45,864 | | | $ | — | |
Food and beverage | 21,422 | | | 4,586 | | | — | | | 11,591 | | | (42) | |
Hotel | 15,875 | | | 1,484 | | | — | | | 2,756 | | | — | |
Retail, entertainment and other | 20,268 | | | 1,623 | | | — | | | 11,071 | | | 162 | |
Management and development | — | | | — | | | — | | | — | | | 8,454 | |
Net revenues | $ | 182,286 | | | $ | 53,102 | | | $ | — | | | $ | 71,282 | | | $ | 8,574 | |
________(1)Mohegan Sun Las Vegas did not open to the public until March 25, 2021.
(2)Gaming revenues represent revenues earned under the Casino Operating and Services Agreement.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended March 31, 2021 |
| Connecticut | | Pennsylvania | | Nevada | | Canada | | |
| (Mohegan Sun) | | (Mohegan Sun Pocono) | | (Mohegan Sun Las Vegas) (1) | | (MGE Niagara Resorts) (2) | | Other |
Gaming | $ | 270,990 | | | $ | 84,661 | | | $ | 1,515 | | | $ | 25,219 | | | $ | — | |
Food and beverage | 22,252 | | | 1,973 | | | 177 | | | — | | | (19) | |
Hotel | 31,808 | | | 1,897 | | | — | | | — | | | (11) | |
Retail, entertainment and other | 29,863 | | | 1,930 | | | 23 | | | 1,594 | | | 2,817 | |
Management and development | — | | | — | | | — | | | — | | | 31,909 | |
Net revenues | $ | 354,913 | | | $ | 90,461 | | | $ | 1,715 | | | $ | 26,813 | | | $ | 34,696 | |
________(1)Mohegan Sun Las Vegas opened to the public on March 25, 2021.
(2)Gaming revenues represent revenues earned under the Casino Operating and Services Agreement.
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended March 31, 2020 |
| Connecticut | | Pennsylvania | | Nevada | | Canada | | |
| (Mohegan Sun) | | (Mohegan Sun Pocono) | | (Mohegan Sun Las Vegas) (1) | | (MGE Niagara Resorts) (2) | | Other |
Gaming | $ | 284,980 | | | $ | 97,387 | | | $ | — | | | $ | 97,896 | | | $ | — | |
Food and beverage | 49,955 | | | 10,668 | | | — | | | 27,544 | | | (78) | |
Hotel | 37,923 | | | 3,464 | | | — | | | 6,319 | | | (2) | |
Retail, entertainment and other | 52,763 | | | 3,537 | | | — | | | 24,497 | | | 308 | |
Management and development | — | | | — | | | — | | | — | | | 17,466 | |
Net revenues | $ | 425,621 | | | $ | 115,056 | | | $ | — | | | $ | 156,256 | | | $ | 17,694 | |
________(1)Mohegan Sun Las Vegas did not open to the public until March 25, 2021.
(2)Gaming revenues represent revenues earned under the Casino Operating and Services Agreement.
Contract and Contract-related Assets
As of March 31, 2021 and September 30, 2020, contract assets related to the Casino Operating and Services Agreement totaled $132.0 million and $129.2 million, respectively.
Contract and Contract-related Liabilities
A difference may exist between the timing of cash receipts from patrons and the recognition of revenues, resulting in a contract or contract-related liability. In general, the Company has three types of such liabilities: (1) outstanding gaming chips and slot tickets liability, which represents amounts owed in exchange for outstanding gaming chips and slot tickets held by patrons, (2) loyalty points deferred revenue liability and (3) patron advances and other liability, which primarily represents funds deposited in advance by patrons for gaming and advance payments by patrons for goods and services such as advance ticket sales, deposits on rooms and convention space and gift card purchases. These liabilities are generally expected to be recognized as revenues within one year and are recorded within other current liabilities.
The following table summarizes these liabilities (in thousands): | | | | | | | | | | | |
| March 31, 2021 | | September 30, 2020 |
Outstanding gaming chips and slot tickets liability | $ | 9,104 | | | $ | 7,623 | |
Loyalty points deferred revenue liability | 37,333 | | | 35,368 | |
Patron advances and other liability | 19,556 | | | 17,340 | |
Total | $ | 65,993 | | | $ | 60,331 | |
As of March 31, 2021 and September 30, 2020, customer contract liabilities related to Mohegan Sun Pocono's revenue sharing agreement with Unibet Interactive Inc. totaled $16.2 million and $16.8 million, respectively, and were primarily recorded within other long-term liabilities.
Fair Value of Financial Instruments
The Company applies the following fair value hierarchy, which prioritizes the inputs utilized to measure fair value into three levels:
•Level 1 - Quoted prices for identical assets or liabilities in active markets;
•Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets or valuations based on models where the significant inputs are observable or can be corroborated by observable market data; and
•Level 3 - Valuations based on models where the significant inputs are unobservable. The unobservable inputs reflect the Company's estimates or assumptions that market participants would utilize in pricing such assets or liabilities.
The Company's assessment of the significance of a particular input requires judgment and may affect the valuation of financial assets and liabilities and their placement within the fair value hierarchy.
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
The carrying amount of cash and cash equivalents, restricted cash and cash equivalents, receivables and trade payables approximates fair value. The estimated fair values of the Company's long-term debt were as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2021 |
| Carrying Value | | Fair Value |
New senior secured credit facility - revolving (1) | $ | 107,000 | | | $ | 105,529 | |
Line of credit (1) | 16,015 | | | 15,795 | |
2021 8% senior secured notes (1) | 1,156,117 | | | 1,180,875 | |
2016 7 7/8% senior unsecured notes (1) | 492,691 | | | 520,000 | |
MGE Niagara Resorts credit facility - revolving (1) | 27,794 | | | 27,794 | |
MGE Niagara Resorts credit facility - term loan (1) | 71,618 | | | 71,618 | |
MGE Niagara Resorts convertible debenture (2) | 31,764 | | | 31,764 | |
Mohegan Expo credit facility (3) | 26,725 | | | 27,159 | |
Guaranteed credit facility (3) | 28,369 | | | 29,094 | |
Redemption note payable (3) | 61,330 | | | 61,330 | |
Other (3) | 3,661 | | | 3,661 | |
Long-term debt | $ | 2,023,084 | | | $ | 2,074,619 | |
________
(1)Estimated fair values were based on Level 2 inputs (quoted market prices or prices of similar instruments) as of March 31, 2021.
(2)Estimated fair value was based on Level 3 inputs (changes in market conditions) from date of issuance (June 11, 2019) to March 31, 2021.
(3)Estimated fair values were based on Level 3 inputs (present value of future payments discounted to carrying value) as of March 31, 2021.
New Accounting Standards
The following accounting standards were adopted during the six months ended March 31, 2021:
ASU 2016-13
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” (“ASU 2016-13”), which sets forth a current expected credit loss model requiring a company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This model replaced the prior incurred loss model and applies to the measurement of credit losses on financial assets measured at amortized cost, as well as certain off-balance sheet credit exposures. Effective October 1, 2020, the Company adopted ASU 2016-13 and its adoption did not have a material impact on the Company's financial statements.
ASU 2018-13
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which added, amended and removed certain disclosure requirements related to fair value measurements. ASU 2018-13 requires enhanced disclosures on valuation techniques and inputs that a reporting entity uses to determine its measures of fair value, including judgments and assumptions that the entity makes and the uncertainties in the fair value measurements as of the reporting date. Effective October 1, 2020, the Company adopted ASU 2018-13 and its adoption did not have a material impact on the Company's financial statement disclosures.
The following accounting standards will be adopted in future reporting periods:
ASU 2019-12
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies various aspects related to the accounting for income taxes. This new standard removes certain exceptions to the general principles in ASU 2019-12 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020. The Company is currently evaluating the impact ASU 2019-12 will have on its financial statements, but does not expect its adoption to have a material impact.
ASU 2020-06
In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which simplifies the
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
accounting for convertible instruments by removing major separation models required under current guidance. ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements and related disclosures, but does not expect its adoption to have a material impact.
NOTE 2—LEASES:
Lessee
The Company leases real estate and equipment under various operating and finance lease agreements. The leases have terms ranging from approximately one month to 50 years and do not contain any material residual value guarantees or restrictive covenants. Rental payments under these lease agreements are fixed and/or variable based on periodic adjustments for inflation, performance, usage or appraised land values. Variable components of lease payments are not included in the calculation of ROU assets and liabilities.
The Company’s lease arrangements contain both lease and non-lease components. For instances in which the Company is a lessee, the Company accounts for both lease and non-lease components as a single lease component for substantially all classes of underlying assets (primarily real estate and equipment). Leases with an expected or initial term of 12 months or less are not recorded on the Company’s condensed consolidated balance sheet and the related lease expenses are recognized on a straight-line basis over the expected lease term.
Information related to weighted average lease terms and discount rates is as follows:
| | | | | |
| March 31, 2021 |
Weighted average remaining lease terms (years): | |
Operating leases | 24 |
Finance leases | 19 |
Weighted average discount rates: | |
Operating leases | 7.68 | % |
Finance leases | 7.76 | % |
The components of lease expense are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the | | For the | | For the | | For the |
| Three Months Ended | | Three Months Ended | | Six Months Ended | | Six Months Ended |
| March 31, 2021 | | March 31, 2020 | | March 31, 2021 | | March 31, 2020 |
Operating lease expense | $ | 11,349 | | | $ | 9,375 | | | $ | 22,704 | | | $ | 18,976 | |
Short-term lease expense | 7,661 | | | 7,594 | | | 14,216 | | | 17,550 | |
Variable lease expense | 3,909 | | | 3,198 | | | 7,865 | | | 6,807 | |
Finance lease expense: | | | | | | | |
Amortization of right-of-use assets | 679 | | | 606 | | | 1,252 | | | 1,213 | |
Interest on lease liabilities | 488 | | | 391 | | | 875 | | | 788 | |
Less: sublease income (1) | (4,134) | | | (7,121) | | | (8,057) | | | (16,725) | |
Total | $ | 19,952 | | | $ | 14,043 | | | $ | 38,855 | | | $ | 28,609 | |
________
(1)Represents income earned by the Company from the rental of hotel, convention or retail space at the MGE Niagara Resorts and the Earth Hotel Tower at Mohegan Sun, both of which are leased properties.
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
Supplemental cash flow information related to lease liabilities is as follows (in thousands):
| | | | | | | | | | | |
| For the | | For the |
| Six Months Ended | | Six Months Ended |
| March 31, 2021 | | March 31, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Payments on operating lease obligations | $ | 8,214 | | | $ | 16,434 | |
Payments for interest on finance lease obligations | 119 | | | 787 | |
Payments on finance lease obligations | 536 | | | 828 | |
Total | $ | 8,869 | | | $ | 18,049 | |
Maturities of right-of-use lease obligations are as follows (in thousands):
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
Fiscal years: | | | |
2021 (1) | $ | 42,947 | | | $ | 3,958 | |
2022 | 38,950 | | | 8,005 | |
2023 | 39,924 | | | 12,133 | |
2024 | 39,726 | | | 11,702 | |
2025 | 39,992 | | | 11,302 | |
Thereafter | 831,970 | | | 171,648 | |
Total future lease payments | 1,033,509 | | | 218,748 | |
Less: amounts representing interest | (547,777) | | | (107,435) | |
Plus: residual values | — | | | 327 | |
Present value of future lease payments | 485,732 | | | 111,640 | |
Less: current portion of lease obligations | (32,739) | | | (4,165) | |
Lease obligations, net of current portion | $ | 452,993 | | | $ | 107,475 | |
________
(1)Represents payment obligations from April 1, 2021 to September 30, 2021.
Lessor
The Company leases space at its facilities to third parties. Lease terms for these non-cancelable operating leases range from approximately one month to 21 years. Rental income under these lease agreements is fixed and/or variable based on percentage of tenant sales or periodic adjustments for inflation. Rental income is recorded within hotel and retail, entertainment and other revenues. For instances in which the Company is the lessor, and the class of underlying asset represents retail space, the Company accounts for both the lease and non-lease components, such as common area maintenance and tenant services, as a single lease component. In all other instances, non-lease components are accounted for separately in accordance with applicable guidance, most commonly ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”.
Lease income consists of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2021 | | For the Three Months Ended March 31, 2020 |
| Hotel | | Retail, Entertainment and Other | | Hotel | | Retail, Entertainment and Other |
Fixed rent | $ | 11,104 | | | $ | 1,317 | | | $ | 11,355 | | | $ | 1,856 | |
Variable rent | — | | | 935 | | | — | | | 1,477 | |
Total | $ | 11,104 | | | $ | 2,252 | | | $ | 11,355 | | | $ | 3,333 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended March 31, 2021 | | For the Six Months Ended March 31, 2020 |
| Hotel | | Retail, Entertainment and Other | | Hotel | | Retail, Entertainment and Other |
Fixed rent | $ | 21,502 | | | $ | 2,884 | | | $ | 27,098 | | | $ | 4,665 | |
Variable rent | — | | | 1,445 | | | — | | | 3,131 | |
Total | $ | 21,502 | | | $ | 4,329 | | | $ | 27,098 | | | $ | 7,796 | |
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
Future fixed rental income that the Company expects to earn under non-cancelable operating leases, exclusive of amounts under contingent escalated rent clauses, is as follows (in thousands):
| | | | | |
Fiscal years: | Operating Leases Fixed Rental Income |
2021 (1) | $ | 3,122 | |
2022 | 5,025 | |
2023 | 4,405 | |
2024 | 3,910 | |
2025 | 2,815 | |
Thereafter | 6,720 | |
Total | $ | 25,997 | |
________
(1)Represents future fixed rental income from April 1, 2021 to September 30, 2021.
Due to the evolving nature of COVID-19 and the related economic uncertainties, the Company cannot be certain that the contractual future fixed rental income presented above will be realized in its entirety.
The portions of Mohegan Sun, including the Sky Hotel Tower and the Earth Expo & Convention Center, and Mohegan Sun Pocono that are leased to third parties under operating leases are recorded within property and equipment, net as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2021 | | September 30, 2020 |
Property and equipment, at cost | $ | 483,788 | | | $ | 484,143 | |
Less: accumulated depreciation | (206,668) | | | (198,080) | |
Property and equipment, net | $ | 277,120 | | | $ | 286,063 | |
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
NOTE 3—LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2021 | | September 30, 2020 |
New Senior Secured Credit Facility - Revolving | $ | 107,000 | | | $ | — | |
Line of Credit | 16,015 | | | — | |
Prior Senior Secured Credit Facility - Revolving | — | | | 197,000 | |
Prior Senior Secured Credit Facility - Term Loan A, net of discount and debt issuance costs of $4,199 | — | | | 227,710 | |
Prior Senior Secured Credit Facility - Term Loan B, net of discount and debt issuance costs of $20,809 | — | | | 792,829 | |
2021 8% Senior Secured Notes, net of discount and debt issuance costs of $18,883 | 1,156,117 | | | — | |
2016 7 7/8% Senior Unsecured Notes, net of discount and debt issuance costs of $7,309 and $8,179, respectively | 492,691 | | | 491,821 | |
MGE Niagara Resorts Credit Facility - Revolving | 27,794 | | | 26,187 | |
MGE Niagara Resorts Credit Facility - Term Loan, net of debt issuance costs of $844 and $847, respectively | 71,618 | | | 69,297 | |
MGE Niagara Resorts Convertible Debenture | 31,764 | | | 29,928 | |
Mohegan Expo Credit Facility, net of debt issuance costs of $434 and $658, respectively | 26,725 | | | 27,750 | |
Guaranteed Credit Facility, net of debt issuance costs of $725 and $877, respectively | 28,369 | | | 29,529 | |
Mohegan Tribe Subordinated Loan | — | | | 5,000 | |
Redemption Note Payable, net of discount of $11,990 and $15,701, respectively | 61,330 | | | 69,099 | |
Other | 3,661 | | | 3,860 | |
Long-term debt | 2,023,084 | | | 1,970,010 | |
Less: current portion of long-term debt | (49,555) | | | (75,355) | |
Long-term debt, net of current portion | $ | 1,973,529 | | | $ | 1,894,655 | |
Maturities of long-term debt are as follows (in thousands):
| | | | | |
Fiscal Years | |
2021 | $ | 16,812 | |
2022 | 57,677 | |
2023 | 152,746 | |
2024 | 128,830 | |
2025 | 500,025 | |
Thereafter | 1,207,179 | |
Total | $ | 2,063,269 | |
Refinancing Transactions
On January 26, 2021, the Company completed a series of refinancing transactions, including (i) entering into a new senior secured credit facility, (ii) issuing new senior secured notes, (iii) prepaying its prior Senior Secured Credit Facilities, (iv) prepaying the Main Street Term Loan Facility and (v) repaying the Mohegan Tribe Subordinated Loan. The Company incurred $24.0 million in costs in connection with these refinancing transactions. Previously deferred debt issuance costs and debt discounts totaling $23.7 million, as well as $0.1 million in new transaction costs were expensed and recorded as a loss on modification and early extinguishment of debt. New debt issuance costs totaling $4.5 million were capitalized as an asset and will be amortized over the term of the related debt. The remaining $19.4 million in new debt issuance costs was reflected as debt discount and will be amortized over the term of the related debt.
New Senior Secured Credit Facility
On January 26, 2021, the Company entered into a credit agreement (the “Credit Agreement”) among the Company, the Mohegan Tribe, Citizens Bank, N.A., as administrative agent, and the other lenders and financial institutions party thereto, providing for a $262.875 million senior secured revolving credit facility (the “New Senior Secured Credit Facility”). The New Senior Secured Credit Facility matures on April 14, 2023.
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
The initial draw under the New Senior Secured Credit Facility, together with proceeds from the 2021 Senior Secured Notes (defined below), was used to (i) prepay all amounts outstanding under the prior Senior Secured Credit Facilities, (ii) prepay all amounts outstanding under the Main Street Term Loan Facility, (iii) repay the Mohegan Tribe Subordinated Loan and (iv) pay related fees and expenses. The New Senior Secured Credit Facility will otherwise be available for general corporate purposes.
The Credit Agreement contains certain customary covenants applicable to the Company and its restricted subsidiaries, including covenants governing: incurrence of indebtedness, incurrence of liens, payment of dividends and other distributions, investments, asset sales, affiliate transactions and mergers or consolidations. Additionally, the Credit Agreement includes financial maintenance covenants pertaining to total leverage, secured leverage and fixed charge coverage, as well as a minimum liquidity covenant. The Credit Agreement also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations.
Borrowings under the New Senior Secured Credit Facility bear interest as follows: (i) for base rate loans, a base rate equal to the highest of (x) the prime rate, (y) the federal funds rate plus 50 basis points and (z) the one-month LIBOR rate plus 100 basis points (the highest of (x), (y) and (z), the “base rate”), plus a leverage-based margin of 100 to 275 basis points; and (ii) for Eurodollar rate loans, the applicable LIBOR rate (subject to a 0.75% LIBOR floor) plus a leverage-based margin of 200 to 375 basis points. The Company is also required to pay a leverage-based undrawn commitment fee on the New Senior Secured Credit Facility of between 37.5 and 50 basis points. Interest on Eurodollar rate loans is payable in arrears at the end of each applicable interest period, but not less frequently than quarterly. Interest on base rate advances is payable quarterly in arrears.
The New Senior Secured Credit Facility is fully and unconditionally guaranteed, jointly and severally, by each of Downs Racing, L.P., Backside, L.P., Mill Creek Land, L.P., Northeast Concessions, L.P., Mohegan Commercial Ventures PA, LLC, Mohegan Basketball Club LLC, Mohegan Ventures-Northwest, LLC and Mohegan Golf, LLC (the “Guarantors”; and the Guarantors other than Mohegan Basketball Club LLC, the “Grantors”). The New Senior Secured Credit Facility is secured on a first priority senior secured basis by collateral constituting substantially all of the Company’s and Grantors’ assets. In the future, certain other subsidiaries of the Company may be required to become Guarantors and/or Grantors in accordance with the terms of the Credit Agreement and related loan documents.
Senior Secured Credit Facilities - Non-cash Transactions
On March 31, 2021 and 2020, the bank that administers the Company's debt service payments for its New Senior Secured Credit Facility and prior Senior Secured Credit Facilities made principal payments on behalf of the Company totaling $3.0 million and $10.5 million, respectively, but did not accordingly debit the Company's bank account for these payments. As of March 31, 2021 and 2020, the Company reflected these non-cash transactions as reductions to current portion of long-term debt and corresponding increases to other current liabilities. On the respective following banking days, the bank withdrew the payments from the Company's bank account, resulting in reductions to the Company's cash and cash equivalents and other current liabilities.
Line of Credit
On January 26, 2021, in connection with the New Senior Secured Credit Facility, the Company entered into a $25.0 million revolving credit facility with Bank of America, N.A. (the “Line of Credit”). The Line of Credit is coterminous with the New Senior Secured Credit Facility. Pursuant to provisions of the New Senior Secured Credit Facility, under certain circumstances, the Line of Credit may be converted into loans under the New Senior Secured Credit Facility. Each advance accrues interest at a base rate plus a spread. The Line of Credit contains negative covenants and financial maintenance covenants that are substantially the same as those contained in the New Senior Secured Credit Facility.
Main Street Term Loan Facility
On December 1, 2020, the Company entered into a loan agreement (the “Loan Agreement”) among the Company, the Mohegan Tribe and Liberty Bank, as lender, in connection with the Main Street Priority Loan Facility established by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under Section 13(3) of the Federal Reserve Act. The Loan Agreement provided for a senior secured term loan facility (the “Main Street Term Loan Facility”) in an aggregate principal amount of $50.0 million, subject to approval by the Federal Reserve, which was received on December 15, 2020. On December 15, 2020, the Company borrowed the full $50.0 million in principal amount under the Main Street Term Loan Facility. The proceeds from the Main Street Term Loan Facility were used: (i) to fund transaction costs in connection with the Loan Agreement and (ii) for working capital and general corporate purposes. The Main Street Term Loan Facility accrued interest at a rate equal to the three-month LIBOR plus 3%, payable quarterly in arrears, and was scheduled to mature on December 1,
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
2025. On January 26, 2021, the Company prepaid all amounts outstanding under, and terminated, the Main Street Term Loan Facility.
2021 8% Senior Secured Notes
On January 26, 2021, the Company issued $1.175 billion in aggregate principal amount of second priority senior secured notes due 2026 (the “2021 Senior Secured Notes”) in a private placement. On the same date, the Company, the Guarantors and the Mohegan Tribe entered into an indenture agreement (the “Indenture”) with U.S. Bank National Association, the trustee for the 2021 Senior Secured Notes.
The 2021 Senior Secured Notes bear interest at a fixed rate of 8% per annum and mature on the earlier of February 1, 2026 and the Springing Maturity Date (as defined in the Indenture). Interest on the 2021 Senior Secured Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2021. The 2021 Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, by each of the Guarantors and will be guaranteed by each other restricted subsidiary of the Company that becomes a guarantor in accordance with the terms of the 2021 Senior Secured Notes. The 2021 Senior Secured Notes are secured on a second priority senior secured basis by collateral constituting substantially all of the Company’s and Grantors’ assets.
Prior to February 1, 2023, the Company may redeem some or all of the 2021 Senior Secured Notes at a redemption price equal to 100% of the principal amount of the 2021 Senior Secured Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus the “make-whole” premium described in the Indenture. In addition, the Company may, during the twelve-month period commencing on the issue date of the 2021 Senior Secured Notes and during the twelve-month period subsequent to such initial twelve-month period and prior to February 1, 2023, redeem in each such twelve-month period up to 10% of the initial aggregate principal amount of the 2021 Senior Secured Notes at a redemption price equal to 103% of the principal amount of the 2021 Senior Secured Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date, provided that if the Company does not redeem 10% of the initial aggregate principal amount of the 2021 Senior Secured Notes during the initial twelve-month period commencing on the issue date of the 2021 Senior Secured Notes, the Company may, in the subsequent twelve-month period prior to February 1, 2023, redeem the 2021 Senior Secured Notes in an amount that does not exceed 10% of the initial aggregate principal amount of the 2021 Senior Secured Notes plus the difference between (i) 10% of the initial aggregate principal amount of the 2021 Senior Secured Notes and (ii) the aggregate principal amount of any 2021 Senior Secured Notes redeemed during such initial twelve-month period. On or after February 1, 2023, the Company may redeem some or all of the 2021 Senior Secured Notes at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date.
The Indenture contains certain customary covenants, including in respect of the Company’s and its restricted subsidiaries’ ability to incur additional debt, pay dividends or distributions, make certain investments, create liens on assets, enter into transactions with affiliates, merge or consolidate with another company or sell assets. The Indenture includes customary events of default, including, but not limited to, failure to make required payments and failure to comply with certain covenants.
The proceeds from the 2021 Senior Secured Notes were used as described above.
Amendments and Waivers with Respect to MGE Niagara Resorts Credit Facilities
On March 31, 2021, MGE Niagara entered into a Sixth Amended and Restated Limited Waiver (the “Sixth Waiver”) which, among other things: (i) waived anticipated breaches of certain financial covenants under the MGE Niagara Resorts credit facilities as a result of the closure of the MGE Niagara Resorts until September 30, 2021, (ii) waived the requirement for MGE Niagara to deliver (a) compliance certificates under the MGE Niagara Resorts credit facilities for the fiscal quarters ending June 30, 2020, September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021 and (b) annual business plans for the operating years ending March 31, 2021 and March 31, 2022 and (iii) extended the waiver of the occurrence of an event of default that would have been caused under the MGE Niagara Resorts credit facilities due to the closure of the MGE Niagara Resorts through September 30, 2021 (the “Further Extended Waiver Period”).
In connection with the Sixth Waiver, MGE Niagara agreed, among other things, during the Further Extended Waiver Period, to: (i) continue to not make any request for advances under the MGE Niagara Resorts credit facilities, (ii) continue pricing under the MGE Niagara Resorts credit facilities at pricing level 5, (iii) maintain minimum liquidity of 12.5 million Canadian dollars, (iv) continue to deliver to the administrative agent a weekly liquidity report and (v) refrain from making certain Distributions (as defined under the MGE Niagara Resorts credit facilities).
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
Amendments to Mohegan Expo Credit Facility and Guaranteed Credit Facility
On January 26, 2021, the Company entered into amendments with respect to the Mohegan Expo Credit Facility and the Guaranteed Credit Facility in order to, among other things, provide waivers relating to disclosures in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 regarding the Company’s ability to continue as a going concern.
Debt Covenant Compliance
As of March 31, 2021, the Company was in compliance with its required financial covenants.
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
NOTE 4—SEGMENT REPORTING:
The Company, either directly or through subsidiaries, operates Mohegan Sun, along with its other Connecticut operations (the “Connecticut Facilities”), Mohegan Sun Pocono, along with its other Pennsylvania operations (the “Pennsylvania Facilities”) and the MGE Niagara Resorts. Certain other properties that are managed or under development by the Company are identified as the management, development and other reportable segment.
The Company's chief operating decision maker currently reviews and assesses the performance and operating results and determines the proper allocation of resources to the Connecticut Facilities, the Pennsylvania Facilities, the MGE Niagara Resorts and the properties managed or under development on a separate basis. Accordingly, the Company has four separate reportable segments: (i) Mohegan Sun, which includes the operations of the Connecticut Facilities, (ii) Mohegan Sun Pocono, which includes the operations of the Pennsylvania Facilities, (iii) the MGE Niagara Resorts and (iv) management, development and other. The Company's corporate functions, along with any inter-segment activities are disclosed separately in the following segment disclosures to reconcile to consolidated results.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Six Months Ended |
(in thousands) | March 31, 2021 | | March 31, 2020 | | March 31, 2021 | | March 31, 2020 |
Net revenues: | | | | | | | |
Mohegan Sun | $ | 189,022 | | | $ | 182,286 | | | $ | 354,913 | | | $ | 425,621 | |
Mohegan Sun Pocono | 52,376 | | | 53,102 | | | 90,461 | | | 115,056 | |
MGE Niagara Resorts | 13,816 | | | 71,282 | | | 26,813 | | | 156,256 | |
Management, development and other | 20,309 | | | 8,454 | | | 33,624 | | | 17,466 | |
Corporate | 2,557 | | | 120 | | | 2,787 | | | 228 | |
Inter-segment | 548 | | | (543) | | | 811 | | | (874) | |
Total | $ | 278,628 | | | $ | 314,701 | | | $ | 509,409 | | | $ | 713,753 | |
| | | | | | | |
Income (loss) from operations: | | | | | | | |
Mohegan Sun | $ | 51,765 | | | $ | 19,194 | | | $ | 79,012 | | | $ | 64,259 | |
Mohegan Sun Pocono | 6,441 | | | (121,541) | | | 7,797 | | | (113,747) | |
MGE Niagara Resorts | (11,277) | | | 948 | | | (23,798) | | | (385) | |
Management, development and other | 5,473 | | | 589 | | | 7,546 | | | (329) | |
Corporate | (7,547) | | | (5,447) | | | (15,085) | | | (12,611) | |
Inter-segment | 1 | | | 2 | | | (6) | | | (17) | |
Total | $ | 44,856 | | | $ | (106,255) | | | $ | 55,466 | | | $ | (62,830) | |
| | | | | | | |
| | | | | For the Six Months Ended |
(in thousands) | | | | | March 31, 2021 | | March 31, 2020 |
Capital expenditures incurred: | | | | | | | |
Mohegan Sun | | | | | $ | 8,694 | | | $ | 7,666 | |
Mohegan Sun Pocono | | | | | 2,679 | | | 2,588 | |
MGE Niagara Resorts | | | | | 7,538 | | | 14,542 | |
Management, development and other | | | | | 97,303 | | | 65,800 | |
Corporate | | | | | 300 | | | 98 | |
Total | | | | | $ | 116,514 | | | $ | 90,694 | |
| | | | | | | |
(in thousands) | | | | | March 31, 2021 | | September 30, 2020 |
Total assets: | | | | | | | |
Mohegan Sun | | | | | $ | 1,290,831 | | | $ | 1,271,435 | |
Mohegan Sun Pocono | | | | | 409,108 | | | 409,630 | |
MGE Niagara Resorts | | | | | 611,408 | | | 581,562 | |
Management, development and other | | | | | 555,457 | | | 423,313 | |
Corporate | | | | | 987,174 | | | 992,874 | |
Inter-segment | | | | | (999,787) | | | (971,626) | |
Total | | | | | $ | 2,854,191 | | | $ | 2,707,188 | |
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
NOTE 5—COMMITMENTS AND CONTINGENCIES:
The Company is a defendant in various claims and legal actions resulting from its normal course of business, primarily relating to personal injuries to patrons and damages to patrons' personal assets. The Company estimates litigation claims expense and accrues for such liabilities based upon historical experience. In management's opinion, the aggregate liability, if any, arising from such legal actions will not have a material impact on the Company's financial position, results of operations or cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Some information included in this Quarterly Report on Form 10-Q and other materials filed by us with the Securities and Exchange Commission, or the SEC, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information relating to business development activities, as well as capital spending, financing sources, the effects of regulation, including gaming and tax regulation and increased competition. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect” or “intend” and similar expressions. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated future results, and accordingly, such results may differ materially from those expressed in any forward-looking statements made by us or on our behalf. These risks and uncertainties include, but are not limited to, those relating to the following:
•the COVID-19 pandemic and the related social and economic disruption, including “stay at home” orders and similar regulations, or decreased interest in attendance at our facilities, and any plans or expectations around the reopening or resumption of operations at any of our facilities;
•the financial performance of our various operations;
•the local, regional, national or global economic climate;
•increased competition, including the expansion of gaming in jurisdictions in which we own or operate gaming facilities;
•our leverage and ability to meet our debt service obligations and maintain compliance with financial debt covenants;
•the continued availability of financing;
•our dependence on existing management;
•our ability to integrate new amenities from expansions to our facilities into our current operations and manage the expanded facilities;
•changes in federal or state tax laws or the administration of such laws;
•changes in gaming laws or regulations, including the limitation, denial or suspension of licenses required under gaming laws and regulations;
•cyber security risks relating to our information technology and other systems, including misappropriation of patron information or other breaches of information security;
•changes in applicable laws pertaining to the service of alcohol, smoking or other amenities offered at our facilities;
•our ability to successfully implement our diversification strategy;
•an act of terrorism;
•our customers' access to inexpensive transportation to our facilities and changes in oil, fuel or other transportation-related expenses;
•unfavorable weather conditions;
•risks associated with operations in foreign jurisdictions;
•failure by our employees, agents, affiliates, vendors or businesses to comply with applicable laws, rules and regulations, including state gaming laws and regulations and anti-bribery laws such as the United States Foreign Corrupt Practices Act, and similar anti-bribery laws in other jurisdictions; and
•fluctuations in foreign currency exchange rates.
Additional information concerning potential factors that could affect our financial results is included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as well as our other reports and filings with the SEC. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent events or circumstances, except as required by law. We cannot assure you that projected results or events will be achieved or will occur.
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes beginning on page 3 of this Quarterly Report on Form 10-Q.
Overview
Our Company
We were established in July 1995 by the Mohegan Tribe, a federally-recognized Indian tribe with an approximately 595-acre reservation situated in southeastern Connecticut, adjacent to Uncasville, Connecticut. Under the Indian Gaming Regulatory Act of 1988, federally-recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal lands, subject to, among other things, the negotiation of a compact with the affected state. The Mohegan Tribe and the State of Connecticut entered into such a compact, the Mohegan Compact, which was approved by the United States Secretary of the Interior. We were established as an instrumentality of the Mohegan Tribe, with the exclusive authority to conduct and regulate gaming activities for the Mohegan Tribe on tribal lands and the non-exclusive authority to conduct such activities elsewhere. We are governed and overseen by a nine-member Management Board, whose members also comprise the Mohegan Tribal Council, the governing body of the Mohegan Tribe. Any change in the composition of the Mohegan Tribal Council results in a corresponding change in our Management Board.
We are primarily engaged in the ownership, operation and development of integrated entertainment facilities, both domestically and internationally. This ownership, operation and development includes the following: (i) ownership and operation of Mohegan Sun, a gaming and entertainment complex located on an approximately 196-acre site in Uncasville, Connecticut, (ii) ownership and operation of Mohegan Sun Pocono, a gaming and entertainment facility located on an approximately 400-acre site in Plains Township, Pennsylvania, (iii) operation of the Niagara Fallsview Casino Resort, Casino Niagara and the 5,000-seat Niagara Falls Entertainment Centre under a Casino Operating and Services Agreement (the “Casino Operating and Services Agreement”), all in Niagara Falls, Canada (collectively, the “MGE Niagara Resorts”), (iv) development and management of ilani Casino Resort in Clark County, Washington, and development rights to any future development at ilani Casino Resort, (v) management of Resorts Casino Hotel in Atlantic City, New Jersey and ownership of 10% of the casino’s holding company and its subsidiaries, including those conducting or licensing online gaming and retail sports wagering in New Jersey, (vi) management of Paragon Casino Resort in Marksville, Louisiana, (vii) operation of the Mohegan Sun Casino at Virgin Hotels Las Vegas (“Mohegan Sun Las Vegas”) in Las Vegas, Nevada, (viii) development and construction of an integrated resort and casino project to be located adjacent to the Incheon International Airport in South Korea and (ix) development and construction of an integrated resort and casino project to be located near Athens, Greece.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and the United States federal government declared it a national emergency. The spread of COVID-19 has affected most segments of the global economy, including our operations. In March 2020, we temporarily suspended operations at our North American owned, operated and managed properties to ensure the health and safety of our employees, guests and the surrounding communities in which we operate, consistent with directives from various government bodies. Following these closures, we reopened our properties as follows: (i) Paragon Casino Resort on May 20, 2020, (ii) ilani Casino Resort on May 28, 2020, (iii) Mohegan Sun on June 1, 2020, (iv) Mohegan Sun Pocono on June 22, 2020 and (v) Resorts Casino Hotel on July 2, 2020. Mohegan Sun Pocono was again temporarily closed from December 12, 2020 through January 3, 2021 due to a resurgence of COVID-19 at that time. In addition, Mohegan Sun Las Vegas opened to the public on March 25, 2021 under capacity restrictions due to COVID-19. As of the date of the filing of this Quarterly Report on Form 10-Q, the MGE Niagara Resorts remain temporarily closed.
We cannot predict when the MGE Niagara Resorts will be able to reopen or the conditions upon which such reopening may occur, and while our reopened properties have experienced some level of continued business disruption, we expect that these disruptions will gradually dissipate, and remain confident in our ability to mitigate the impact of any such disruption through expense management. The impact of COVID-19 on our operations has been significant, though the full extent of its impact will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of COVID-19 or the extent of any resurgence of COVID-19, the manner in which our guests, suppliers and other third parties respond to COVID-19, including the perception of safety and health measures taken by us, new information which may emerge concerning the severity of COVID-19 and the actions to contain or treat it, as well as general economic conditions and consumer confidence. Accordingly, we cannot reasonably estimate the extent to which COVID-19 will further impact our future financial condition, results of operations and cash flows.
We could experience other potential adverse impacts as a result of COVID-19, including, but not limited to, charges from further adjustments to the carrying value of our intangible assets, as well as other long-lived asset impairment charges. Actual results may differ materially from our current estimates as the scope of COVID-19 evolves, depending largely, but not exclusively, on the duration and extent of our business disruptions.
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, we have
evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the accompanying condensed consolidated financial statements are issued. As further discussed within “Liquidity and Capital Resources”, on January 26, 2021, we (i) entered into a new credit agreement which, among other things, provided for an approximately $262.9 million senior secured revolving credit facility, removed the financial covenants (other than a minimum liquidity covenant) applicable for the fiscal quarter ended December 31, 2020, modified the financial covenants applicable for the fiscal quarters ending March 31, 2021 and thereafter and extended the maturity date of the new senior secured revolving credit facility to April 14, 2023 and (ii) issued approximately $1.2 billion of new senior secured notes due February 1, 2026. The proceeds from these transactions were used to refinance certain of our existing indebtedness. Based on the aforementioned and our existing resources, there are no current indicators of substantial doubt as previously disclosed in our Annual Report filed on Form 10-K for the fiscal year ended September 30, 2020, and we expect to have sufficient resources to meet our existing obligations for the next twelve months and to remain in compliance with our financial covenants.
Results of Operations
Summary Operating Results
The following table summarizes our results on a segment basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, | | For the Six Months Ended March 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net revenues: | | | | | | | |
Mohegan Sun | $ | 189,022 | | | $ | 182,286 | | | $ | 354,913 | | | $ | 425,621 | |
Mohegan Sun Pocono | 52,376 | | | 53,102 | | | 90,461 | | | 115,056 | |
MGE Niagara Resorts | 13,816 | | | 71,282 | | | 26,813 | | | 156,256 | |
Management, development and other | 20,309 | | | 8,454 | | | 33,624 | | | 17,466 | |
Corporate | 2,557 | | | 120 | | | 2,787 | | | 228 | |
Inter-segment | 548 | | | (543) | | | 811 | | | (874) | |
Total | $ | 278,628 | | | $ | 314,701 | | | $ | 509,409 | | | $ | 713,753 | |
Income (loss) from operations: | | | | | | | |
Mohegan Sun | $ | 51,765 | | | $ | 19,194 | | | $ | 79,012 | | | $ | 64,259 | |
Mohegan Sun Pocono | 6,441 | | | (121,541) | | | 7,797 | | | (113,747) | |
MGE Niagara Resorts | (11,277) | | | 948 | | | (23,798) | | | (385) | |
Management, development and other | 5,473 | | | 589 | | | 7,546 | | | (329) | |
Corporate | (7,547) | | | (5,447) | | | (15,085) | | | (12,611) | |
Inter-segment | 1 | | | 2 | | | (6) | | | (17) | |
Total | $ | 44,856 | | | $ | (106,255) | | | $ | 55,466 | | | $ | (62,830) | |
Net loss attributable to Mohegan Tribal Gaming Authority | $ | (15,989) | | | $ | (140,094) | | | $ | (42,610) | | | $ | (130,700) | |
The most significant factors and trends that impacted our operating and financial performance were as follows:
•COVID-19 and the resulting temporary closures and capacity restrictions at our properties;
•cost saving and expense management initiatives to mitigate the operating and financial impact of COVID-19;
•higher management fees earned;
•higher interest expense;
•an approximately $24 million non-operating loss on modification and early extinguishment of debt principally related to our January 2021 refinancing transactions; and
•a $126.6 million impairment charge related to Mohegan Sun Pocono's intangible assets during the three months ended March 31, 2020.
Mohegan Sun
Revenues
Net revenues increased by $6.7 million, or 3.7%, to $189.0 million for the three months ended March 31, 2021 compared to $182.3 million in the same period in the prior year. The increase in net revenues for the three months ended March 31, 2021 was driven by higher overall gaming revenues which benefited from a full period of operations at Mohegan Sun
during the three months ended March 31, 2021 compared to the same period in the prior year. Mohegan Sun temporarily closed, effective March 18, 2020, following the outbreak of COVID-19, and certain portions reopened to the public on June 1, 2020. The increase in gaming revenues for the three months ended March 31, 2021 also reflected higher slot and table game hold percentages. Net revenues declined by $70.7 million, or 16.6%, to $354.9 million for the six months ended March 31, 2021 compared to $425.6 million in the same period in the prior year. The decline in net revenues for the six months ended March 31, 2021 was principally due to overall capacity restrictions at Mohegan Sun driven by COVID-19.
Operating Costs and Expenses
Operating costs and expenses decreased by $25.8 million, or 15.8%, to $137.3 million for the three months ended March 31, 2021 compared to $163.1 million in the same period in the prior year. Operating costs and expenses decreased by $85.5 million, or 23.7%, to $275.9 million for the six months ended March 31, 2021 compared to $361.4 million in the same period in the prior year. These reductions primarily reflected lower overall operating costs and expenses commensurate with the capacity restrictions at Mohegan Sun, combined with various cost saving and expense management initiatives to mitigate the operating and financial impact of COVID-19.
Mohegan Sun Pocono
Revenues
Net revenues declined by $0.7 million, or 1.3%, to $52.4 million for the three months ended March 31, 2021 compared to $53.1 million in the same period in the prior year. Net revenues for the three months ended March 31, 2021 reflected higher overall gaming revenues which benefited from strong table game and interactive gaming business. These results were offset by lower non-gaming revenues due to capacity restrictions at Mohegan Sun Pocono driven by COVID-19. Net revenues declined by $24.6 million, or 21.4%, to $90.5 million for the six months ended March 31, 2021 compared to $115.1 million in the same period in the prior year. The decline in net revenues for the six months ended March 31, 2021 was principally due to overall capacity restrictions at Mohegan Sun Pocono driven by COVID-19.
Operating Costs and Expenses
Operating costs and expenses decreased by $128.7 million, or 73.7%, to $45.9 million for the three months ended March 31, 2021 compared to $174.6 million in the same period in the prior year. Operating costs and expenses decreased by $146.1 million, or 63.9%, to $82.7 million for the six months ended March 31, 2021 compared to $228.8 million in the same period in the prior year. These reductions primarily reflected the impact of a $126.6 million impairment charge related to Mohegan Sun Pocono’s various gaming licenses that was recorded in the same periods in the prior year, combined with lower overall operating costs and expenses commensurate with the capacity restrictions at Mohegan Sun Pocono and various cost saving and expense management initiatives to mitigate the operating and financial impact of COVID-19.
MGE Niagara Resorts
Revenues
Net revenues totaled $13.8 million for the three months ended March 31, 2021 compared to $71.3 million in the same period in the prior year. Net revenues totaled $26.8 million for the six months ended March 31, 2021 compared to $156.3 million in the same period in the prior year. These results reflect the temporary closure of the MGE Niagara Resorts, effective March 18, 2020, following the outbreak of COVID-19. As of the date of the filing of this Quarterly Report on Form 10-Q, the MGE Niagara Resorts remain temporarily closed. Net revenues for the three months and six months ended March 31, 2021 primarily reflect fixed service provider fees pursuant to the terms of our Casino Operating and Services Agreement with the Ontario Lottery and Gaming Corporation.
Operating Costs and Expenses
Operating costs and expenses totaled $25.1 million for the three months ended March 31, 2021 compared to $70.3 million in the same period in the prior year. Operating costs and expenses totaled $50.6 million for the six months ended March 31, 2021 compared to $156.6 million in the same period in the prior year. These results reflect reduced overall operating costs and expenses due to the temporary closure of the MGE Niagara Resorts.
Management, Development and Other
Revenues
Net revenues increased by $11.8 million, or 138.8%, to $20.3 million for the three months ended March 31, 2021 compared to $8.5 million in the same period in the prior year. Net revenues increased by $16.1 million, or 92.0%, to $33.6 million for the six months ended March 31, 2021 compared to $17.5 million in the same period in the prior year. The increases
in net revenues were due to higher management fees from ilani Casino Resort driven by strong performance at the property, combined with additional revenues from Mohegan Sun Las Vegas, which opened to the public on March 25, 2021.
Operating Costs and Expenses
Operating costs and expenses increased by $6.9 million, or 87.3%, to $14.8 million for the three months ended March 31, 2021 compared to $7.9 million in the same period in the prior year. Operating costs and expenses increased by $8.3 million, or 46.6%, to $26.1 million for the six months ended March 31, 2021 compared to $17.8 million in the same period in the prior year. The increases in operating costs and expenses were primarily driven by higher pre-opening costs and expenses related to Project Inspire, along with additional operating costs and expenses associated with Mohegan Sun Las Vegas.
Corporate
Revenues
Net revenues totaled $2.6 million for the three months ended March 31, 2021 compared to $0.1 million in the same period in the prior year. Net revenues totaled $2.8 million for the six months ended March 31, 2021 compared to $0.2 million in the same period in the prior year. The increases in net revenues were primarily driven by additional revenues generated by our construction group, which managed a construction project at Mohegan Sun on behalf of a third-party.
Operating Costs and Expenses
Operating costs and expenses increased by $4.5 million, or 80.4%, to $10.1 million for the three months ended March 31, 2021 compared to $5.6 million in the same period in the prior year. Operating costs and expenses increased by $5.1 million, or 39.8%, to $17.9 million for the six months ended March 31, 2021 compared to $12.8 million in the same period in the prior year. The increases in operating costs and expenses primarily reflect additional construction related expenses and higher payroll costs.
Other Expenses
Other expenses increased by $31.2 million, or 94.8%, to $64.1 million for the three months ended March 31, 2021 compared to $32.9 million in the same period in the prior year. Other expenses increased by $36.9 million, or 54.2%, to $105.0 million for the six months ended March 31, 2021 compared to $68.1 million in the same period in the prior year. The increases in other expenses were primarily driven by a loss on modification and early extinguishment of debt in connection with our January 2021 refinancing transactions, combined with higher interest expense, net of capitalized interest.
On January 26, 2021, we completed a series of refinancing transactions, including (i) entering into a new senior secured credit facility, (ii) issuing new senior secured notes, (iii) prepaying our prior senior secured credit facilities, (iv) prepaying our Main Street term loan facility and (v) repaying our Mohegan Tribe subordinated loan. We incurred $24.0 million in costs in connection with these refinancing transactions. Previously deferred debt issuance costs and debt discounts totaling $23.7 million, as well as $0.1 million in new transaction costs were expensed and recorded as a loss on modification and early extinguishment of debt. New debt issuance costs totaling $4.5 million were capitalized as an asset and will be amortized over the term of the related debt. The remaining $19.4 million in new debt issuance costs was reflected as debt discount and will be amortized over the term of the related debt.
Interest expense, net of capitalized interest increased by $11.4 million, or 36.8%, to $42.4 million for the three months ended March 31, 2021 compared to $31.0 million in the same period in the prior year. Interest expense, net of capitalized interest increased by $17.9 million, or 27.0%, to $84.3 million for the six months ended March 31, 2021 compared to $66.4 million in the same period in the prior year. The increases in interest expense, net of capitalized interest were due to higher weighted average outstanding debt and weighted average interest rate, combined with the impact of the capitalization of interest related to Project Inspire in the same periods in the prior year. Weighted average outstanding debt was $2.13 billion and $2.11 billion for the three months and six months ended March 31, 2021, respectively, compared to $2.06 billion and $2.05 billion for the three months and six months ended March 31, 2020, respectively. Weighted average interest rate was 8.0% for the three months and six months ended March 31, 2021 compared to 7.0% for the three months and six months ended March 31, 2020.
Seasonality
The gaming markets in the Northeastern United States and Niagara Falls, Canada, are seasonal in nature, with peak gaming activities often occurring during the months of May through August. Accordingly, our operating results for the three months and six months ended March 31, 2021 are not necessarily indicative of operating results for other interim periods or an entire fiscal year.
Liquidity and Capital Resources
Liquidity
As of March 31, 2021 and September 30, 2020, we held cash and cash equivalents of $127.8 million and $112.7 million, respectively, of which the MGE Niagara Resorts held $12.3 million and $15.1 million, respectively. Inclusive of letters of credit, which reduce borrowing availability, we had $137.7 million of borrowing capacity under our New Senior Secured Credit Facility and line of credit as of March 31, 2021. As a result of the cash based nature of our business, operating cash flow levels tend to follow trends in our operating income, excluding the effects of non-cash charges, such as depreciation and amortization and impairment charges.
Cash provided by operating activities totaled $67.2 million for the six months ended March 31, 2021 compared to cash used in operating activities of $16.9 million in the same period in the prior year. The increase in cash provided by operating activities was driven by a significant reduction in working capital requirements, including lower working capital requirements associated with the MGE Niagara Resorts resulting from the continued closure of these facilities due to COVID-19. These results were partially offset by lower net income after factoring in non-cash items.
Cash used in investing activities declined by $32.7 million, or 47.9%, to $35.5 million for the six months ended March 31, 2021 compared to $68.2 million in the same period in the prior year. The decline in cash used in investing activities primarily reflected lower capital expenditures, combined with the impact of an investment in Mohegan Hotel Holding, LLC, in the same period in the prior year.
Cash used in financing activities totaled $25.0 million for the six months ended March 31, 2021 compared to cash provided by financing activities of $104.6 million in the same period in the prior year. These results reflect the impact of higher borrowings in the same period in the prior year to ensure maximum financial flexibility in response to COVID-19, combined with the payment of transaction costs associated with our January 2021 refinancing transactions.
New Senior Secured Credit Facility Financial Covenants
On January 26, 2021, we entered into our New Senior Secured Credit Facility, which, among other things, established the financial covenants described in the tables below.
We shall not permit the Fixed Charge Coverage Ratio (as defined under the New Senior Secured Credit Facility) to be less than:
| | | | | |
Fiscal Quarters Ending: | |
March 31, 2021 through December 31, 2021 | 1.00:1.00 |
March 31, 2022 and each fiscal quarter ending thereafter | 1.15:1.00 |
We shall not permit the Total Leverage Ratio (as defined under the New Senior Secured Credit Facility) to be greater than:
| | | | | |
Fiscal Quarters Ending: | |
March 31, 2021 and June 30, 2021 | 7.75:1.00 |
September 30, 2021 | 8.00:1.00 |
December 31, 2021 | 7.25:1.00 |
March 31, 2022 | 6.75:1.00 |
June 30, 2022 and each fiscal quarter ending thereafter | 6.50:1.00 |
We shall not permit the Senior Secured Leverage Ratio (as defined under the New Senior Secured Credit Facility) to be greater than:
| | | | | |
Fiscal Quarters Ending: | |
March 31, 2021 and June 30, 2021 | 5.50:1.00 |
September 30, 2021 | 5.75:1.00 |
December 31, 2021 | 5.25:1.00 |
March 31, 2022 | 4.75:1.00 |
June 30, 2022 and each fiscal quarter ending thereafter | 4.50:1.00 |
Sufficiency of Resources
We believe that existing cash balances, financing arrangements and operating cash flows will provide us with sufficient resources to meet our existing debt obligations, distributions to the Mohegan Tribe, capital expenditures and working capital requirements, including threshold payments relating to the MGE Niagara Resorts, for the next twelve months; however, we can provide no assurance in this regard.
Contractual Obligations
The following table presents estimated future payment obligations related to our debt and the timing of those payments as of March 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments due by Fiscal Year |
Contractual Obligations | Total | | Less than 1 (1) | | 1-3 | | 3-5 | | More than 5 |
Long-term debt, including current portions (excludes unamortized debt issuance costs and discounts) | $ | 2,063,269 | | | $ | 16,812 | | | $ | 210,423 | | | $ | 628,855 | | | $ | 1,207,179 | |
Interest payments on long-term debt | 705,650 | | | 74,822 | | | 293,025 | | | 252,946 | | | 84,857 | |
Total | $ | 2,768,919 | | | $ | 91,634 | | | $ | 503,448 | | | $ | 881,801 | | | $ | 1,292,036 | |
________(1)Represents payment obligations from April 1, 2021 to September 30, 2021.
There has been no material change to the other contractual obligations previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
Critical Accounting Policies and Estimates
There has been no material change from the critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. As of March 31, 2021, our primary exposure to market risk was interest rate risk associated with our credit facilities which accrued interest on the basis of base rate or Eurodollar rate formulas, plus applicable rates, as defined under the credit facilities.
We attempt to manage our interest rate risk through a controlled combination of long-term fixed rate borrowings and variable rate borrowings in accordance with established policies and procedures. We do not hold or issue financial instruments for speculative or trading purposes.
The following table presents information about our debt obligations as of March 31, 2021 that were sensitive to changes in interest rates. The table presents principal payments and related weighted average interest rates by expected maturity dates. Weighted average variable interest rates were based on implied forward rates in respective yield curves, which should not be considered to be precise indicators of actual future interest rates. Fair values for our debt obligations were based on quoted market prices or prices of similar instruments as of March 31, 2021.
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| Expected Maturity Date by Fiscal Year | | | | |
| 2021 (1) | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total | | Fair Value |
Liabilities (in thousands) | | | | | | | | | | | | | | | |
Long-term debt obligations, including current portions (2): | | | | | | | | | | | | | | | |
Fixed rate | $ | 12,266 | | | $ | 25,171 | | | $ | 23,135 | | | $ | 15,970 | | | $ | 500,025 | | | $ | 1,175,415 | | | $ | 1,751,982 | | | $ | 1,765,866 | |
Average interest rate | 0.1 | % | | 0.1 | % | | — | | | — | | | 7.9 | % | | 8.0 | % | | 7.6 | % | | |
Variable rate | $ | 4,546 | | | $ | 32,506 | | | $ | 129,611 | | | $ | 112,860 | | | $ | — | | | $ | 31,764 | | | $ | 311,287 | | | $ | 308,753 | |
Average interest rate (3) | 4.3 | % | | 4.1 | % | | 4.4 | % | | 5.3 | % | | — | | | 8.0 | % | | 4.9 | % | | |
__________(1)Represents payment obligations from April 1, 2021 to September 30, 2021.
(2)Excludes unamortized debt issuance costs and discounts.
(3)A 100 basis point change in average interest rate would impact annual interest expense by approximately $3.1 million.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on an evaluation of our disclosure controls and procedures as of March 31, 2021, our Interim Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material change from the legal proceedings previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
Item 1A. Risk Factors
There has been no material change from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
Item 6. Exhibits
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Exhibit No. | | Description |
4.1 | | |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
10.3 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
101.SCH | | XBRL Taxonomy Extension Schema (filed herewith). |
| | |
101.CAL | | XBRL Taxonomy Calculation Linkbase (filed herewith). |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase (filed herewith). |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase (filed herewith). |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase (filed herewith). |
_____________
* Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon its request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Mohegan Tribal Gaming Authority has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
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| | MOHEGAN TRIBAL GAMING AUTHORITY |
| | | |
Date: | May 14, 2021 | By: | /S/ RAYMOND PINEAULT |
| | | Raymond Pineault Interim Chief Executive Officer, Mohegan Tribal Gaming Authority (Principal Executive Officer)
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| | | |
Date: | May 14, 2021 | By: | /S/ CAROL K. ANDERSON |
| | | Carol K. Anderson Chief Financial Officer, Mohegan Tribal Gaming Authority (Principal Financial and Accounting Officer) |