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S&P rates Graton Rancheria bonds as higher risk for default, higher potential for yield


The tribe building a Las Vegas-style casino next to Rohnert Park is seeking $800 million in financing, according to Standard & Poor's, which has given the tribe's bonds a higher-risk credit rating.

That's the largest sum yet stated for the Federated Indians of Graton Rancheria project on Wilfred Avenue — one of Sonoma County's largest-ever developments.

The financing is detailed in a Standard & Poor's report this week that gave a "B" rating to the tribe's financing arm, the Graton Economic Development Authority. The rating also extended to the securities that the tribe would use to fund the project.

The B rating means bonds are considered to have a higher risk of default but also a higher potential yield, a designation often applied to junk bonds.

It is a common rating for casino projects, said primary Standard & Poor's credit analyst Michael Halchak.

The financing for a major project in an industry under some strain due to the economy and online competition will test a sophisticated investor market with an appetite for such high yield securities.

"There really hasn't been a transaction of this size, with this development risk, for some time, so it's hard to say what the market's going to be like," said Michael Paladino, senior gaming analyst with Fitch Ratings in New York.

The report said it expects the casino, set to rise on 64 acres just south of Home Depot, to earn $440 million a year by 2016. That's more optimistic than projections in the contract signed in March by Gov. Jerry Brown that allows the tribe to run the casino. That contract estimated the enterprise would bring in $392 million in its seventh year.

Standard & Poor's also identifies Kenwood Investments No. 2, a real estate development partnership, as a consultant to the tribe. Darius Anderson, an influential lobbyist and part of a group that in April bought the Sonoma Index-Tribune newspaper, is a Kenwood partner.

Anderson, who has a home in Sonoma and whom the tribe hired in 2003, could not be reached for comment Wednesday about his current role.

The financing package analyzed by Standard & Poor's proposes a $350 million loan that would come due in 2018, and $450 million in bonds that the Authority would sell and that would come due in 2019.

The deal will need to be well structured to pass muster with investors, Paladino said.

"It is a sizable project with a sizable amount of debt," he said, "It will be interesting to see how well it will be executed."

The money would go toward construction of the 534,000-square-foot casino and to repay $175 million in debt to Station Casinos, the tribe's Las Vegas backer, the ratings agency said.

It would also go to "ongoing tribal costs," the agency said. Those costs were not detailed but could include monthly payments to tribal members and salaries for positions such as a gaming commission administrator, for which the tribe has been advertising.

The money raised by the Authority is expected to "fund the vast majority of the tribal expenditures, as the tribe has limited sources of other funds," the report said.

The B rating, and the classification of the Authority's business risk as "weak" — meaning the second-most risky category — reflects its reliance on a single, highly leveraged asset, the casino with 3,000 slot machines and a hotel planned for the future, to pay its debts, Halchak said.

The agency also noted that "new gaming projects" are vulnerable to uncertain demand." However, the agency's report said it expects the business to generate enough excess cash flow to service its debt within a year.

Casino opponents said the rating does not take into account lawsuits filed against the project that challenge the sovereign status of the tribe's 254-acre Wilfred Avenue reservation and the tribal-state agreement approved by Brown in March.

"I think that the lawsuit's a game changer," said Marilee Montgomery, of Stop the Casino 101, a Rohnert Park-based coalition of foes of the project.

"They may have this rating now," Montgomery said, "but I don't think the rating will stand the light of day if they wind up being unable to conduct gambling on that land."

In 2003, Kenwood Investments No. 2, which at that time included Sen. Barbara Boxer's son Doug Boxer as a partner, helped secure about 2,000 acres near Sears Point on which the tribe originally planned its casino.

Boxer did not return repeated phone calls to clarify his current status with the investment group.

A barrage of opposition led the tribe to donate its option for that property to the Sonoma Land Trust conservation group.

You can reach Staff Writer Jeremy Hay at 521-5212 or jeremy.hay@pressdemocrat.com.