A federal court actually allowed an American Indian tribe to get out of a $50 million bond it owed to a private investor, raising concerns among other tribal-casino lenders. The 3,500-member Lac du Flambeau Band of Lake Superior Chippewa Indians, in northern Wisconsin, said $782,000 in monthly bond payments were bleeding it dry so last fall, it stopped making them, arguing that the deal was invalid.
Preposterous you say? A U.S. District Court in Wisconsin last month upheld an earlier ruling that the bond deal, cut in 2008, violated federal Indian casino law.
Defaulting because “the people got fed up” sounds like a line from a comedy routine. For any US based person or entity that defaults on a loan, the collateral posted should be forfeited, certainly at least until the loan is paid back. Thats a founding principle of business. However, the tribe president actually said “…before the bond, we were doing OK. We were able to keep our head above water but the people finally got fed up.”
As far as any potential chilling effect, its not likely. Casino’s are cash machines so investors will just find new and improved loan documents next time. Other Indian casino bondholders beware!