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Fitch Rts Cow Creek Band of Umpqua Tribe of Indians, OR $100.3MM tax rev bnds 'BBB-'.

NEW YORK -- Fitch assigns an initial 'BBB-' underlying rating to the Cow Creek Band of Umpqua Tribe of Indians (the tribe), OR's $25,750,000 taxable tax revenue bonds, series 2006A, $33,980,000 taxable tax revenue bonds, series 2006B and $40,605,000 tax-exempt tax revenue bonds, series 2006C. The bonds will price via negotiation the week of June 5th with Kinsell, Newcomb & DeDios, Inc. as underwriter. The series B bonds are expected to carry a municipal bond insurance policy from ACA Financial Guaranty Corporation (not rated by Fitch). The Rating Outlook is Stable.

The 'BBB-' underlying rating reflects strong legal provisions including daily deposits of pledged revenues; stable operating performance of the gaming facility supported by its location on Interstate 5, the major connector between Canada and southern California; limited per capita distributions with a covenant not to reduce set-asides for bond holders; and political stability at the tribe. The primary credit concerns include a plan for high leverage, which will keep debt service coverage below average for similarly secured credits at this rating level; construction risk and potential business delays associated with hotel expansion; and the fact that pledged revenues are derived from a single-site facility.

The tribal headquarters building is located in Roseburg, OR. The tribe has 1,325 members and is governed by an 11-member board of directors per the tribal constitution. The board represents all tribal members as the sole shareholder in Umpqua Indian Development Corporation (UIDC), a federally chartered section 17 corporation running the tribe's primary enterprises. The main revenue driver for UIDC and the tribe is the Seven Feathers Gaming Center (7F), a 147 room hotel and class III gaming facility operated pursuant to a perpetual compact with the state. State law limits each of the nine tribes in OR to one class III gaming facility and a key credit strength is the tribe's geographic location with little competition in the area.

Legal provisions are strong. The primary source of security for the bonds is a pledge by the tribe of 80% of net gaming tax revenues. The tribe taxes 7F at a rate of 100% of net revenues. Per the gaming revenue code (GRC) adopted by the tribal council in 1995, 80% of the net gaming tax is restricted in use to economic development expenses and this revenue is pledged to bond holders. Pledged revenues also include a guaranty by UIDC of 80% of depreciation expenses associated with 7F. The collateral trustee acts as trustee for all senior debt holders and per the collateral trust and security agreement, will collect 100% of net revenues of 7F on a daily basis and apply such revenues, after operating expenses, to senior debt service payments.

As additional security, a springing reserve fund is triggered when coverage of maximum annual debt service (MADS) dips below 2.0 times (x). Once triggered, the springing reserve will be funded daily, after deposits to the senior debt account, until the balance is equal to MADS. Springing reserve funds are released once coverage of MADS equals 2.25x. The additional bonds test requires 2.75x MADS coverage on senior debt and 2.25x MADS coverage on all debt; proforma. Net funded debt to pledged revenues, cannot exceed 4.0x through Sept. 30, 2009 and 3.5x thereafter. All coverage tests are measured on a rolling 12-month basis.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were under budget in 2005 growing 8.3% versus the budgeted 12% primarily due to delays in converting slot machines to ticket-in-ticket-out. Year to date performance in 2006 shows earnings 3% ahead of budget, on target to meet the projected 3.5% growth in EBITDA. Pledged revenues calculated from the 2005 audit grew 7.9% over 2004 and provided strong historical MADS coverage on the new senior debt service of 2.74x. Due to a very high occupancy rate and pent up demand, the tribe is in the process of funding a hotel expansion which also includes the addition of approximately 300 class III games in June of 2006. The expanded hotel is expected to open in 2008. MADS coverage on the bonds from 2008 and beyond is projected to exceed 3.1x in every year. However the tribe plans to draw on a bank loan through October 2009 to keep overall coverage at 2.75x over that period; the minimal required by the ABT. In stress case scenarios where 7F revenue does not meet projections, MADS coverage on all senior debt is reduced but remains above 1.9x. Projected MADS coverage is sufficient but generally below average for similarly secured credits at this rating level. This risk is somewhat offset by the strong legal structure.

The series 2006A and B taxable bonds will refinance, in their entirety, an outstanding loan and the series 1998 bonds originally issued to refinance the casino and hotel development. The series 2006C tax-exempt bonds will provide reimbursement to the tribe and funding for capital costs associated with the Creekside Project (the project). The project consists of the construction of a reservoir, a water and wastewater treatment plant, and RV park. The project was initiated in 2003 and is near completion. Following issuance of the bonds and drawing down on the loan, future debt plans include enhancements to the project, a retail village and land acquisition. Although some capital investments will be funded with cash, the tribe plans on leveraging its debt capacity under the current security extensively. The 'BBB-' rating considers the fact that coverage levels will likely remain at levels consistent with the minimum requirements under the bond documents.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, ''. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Publication:Business Wire
Geographic Code:1USA
Date:May 31, 2006
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