Seneca Nation of Indians took steps this week to shore up Seneca Gaming Corp.'s finances by trimming the company's obligations to the nation by $32 million.
The Seneca Nation's move will free up more cash for the gaming company at a time when its revenues are dropping and it is scrambling to cut costs as gamblers stay home more often and spend less when they do head to a casino.
The move comes as Moody's Investors Service reduced its outlook for Seneca Gaming Corp.'s debt rating to negative out of fears that the recession could further weaken the tribal gaming company's finances.
Moody's did not reduce Seneca's actual ratings on its $500 million in rated debt securities, which for the most part carry a "speculative" Ba2 rating. But by lowering the outlook to negative from neutral, the ratings service is indicating that the risk of a downgrade in the future has increased.
"The economic challenges are likely to become fiercer in 2009," Moody's said in the report, noting the 7.6 percent decline in the company's fourth-quarter revenues.
The move by the Seneca Nation to ease the obligations of the gaming company reflect the changing economic environment, said Seneca Nation President Barry Snyder Sr., who is Seneca Gaming's chairman.
The revenue decline sped up during January, with revenues dropping by 10 percent to 12 percent from January 2008 levels, Seneca Gaming executives said during a conference call, as fewer customers went to the company's casinos and spent less while they were there.
Seneca Gaming has been aggressively cutting costs. The company suspended construction on its permanent Buffalo casino to conserve cash and has reduced its employment by the equivalent of 14 percent of its full-time work force.
Those efforts, combined with salary reductions for executives above the vice president level and the suspension of pay raises for salaried employees earning more than $75,000, helped the company has reduced its operating expenses by about 15 percent, or $4.6 million, since January 2008.
As a result, Seneca Gaming's earnings before interest, taxes, depreciation and amortization costs were roughly flat in January, despite the drop in revenues, company officials said.
As part of the reduction in obligations to the Seneca Nation, the tribal council dropped an earlier request for $20 million in capital improvements within the nation and reduced the monthly distribution from the company to the nation by $1 million a month to $3 million, beginning in March.
The nation also agreed to return $5 million the company had provided for capital improvements and to a $5 million reduction in the rent it pays the nation to $76 million.
That rent had been scheduled to rise to $81 million from $62 million last October, but the increase had not taken effect because all of the required approvals had not been obtained, the company said in a filing with the Securities and Exchange Commission.