Fitch Ratings takes the following rating action on Chickasaw Nation, OK
(the Nation) bonds:
--$14.5 million health system bonds, series 2007 upgraded to 'BBB' from
The Rating Outlook is Stable.
The bonds are secured by a pledge of the Nation's full faith and credit,
limited to the net available assets of the government, and pledged
health system revenues (Medicare, Medicaid, and private insurance).
The Nation granted a limited waiver of sovereign immunity in conjunction
with the bonds. The Nation has agreed to submit to jurisdiction of
federal and state courts and that any claim or controversy related to
the series 2007 bonds documents may be resolved by arbitration.
KEY RATING DRIVERS
CONTINUED STRONG FINANCIAL OPERATIONS: The upgrade reflects the
continued strong performance of the Nation's financial operations,
including both its casino gaming enterprise and health system.
SOLID ENTERPRISE POSITION: The gaming enterprise enjoys a solid position
in the competitive Oklahoma market and financial performance remains
strong. Risks to gaming operations include the ongoing threat of gaming
legalization in TX, which Fitch continues to monitor but views as a
remote risk over the coming review cycle.
AMPLE DEBT SERVICE COVERAGE; HEALTHCARE ESSENTIALITY: Debt service
coverage has climbed significantly from the time of initial issuance due
to growth in the pledged third-party health revenues and aggressive
early debt retirement. Operating performance of this essential service
has been stable due to continued increases in Indian Health Services'
(IHS) funding and the pledged revenues.
ROBUST GOVERNMENTAL BALANCES: The Nation's general fund has accumulated
very high fund and cash balances over the past few years due to the
increased amount of gaming fund transfers. The Nation has a practice of
maintaining general fund cash balances equal to at least one-year of
TIGHT LEGAL SAFEGUARDS/EXCESS COVENANT RESERVES: Solid legal protections
include a daily sweep of pledged revenues to a trustee-held lock-box and
multiple liquidity reserve requirements, all of which the Nation exceeds.
SHIFT IN HEALTH SYSTEM PERFORMANCE: A shift in the currently strong
performance of the health system and/or declines in the pledged
third-party revenues could influence the rating.
REVENUE CONCENTRATION: As the gaming enterprise fully supports the
Nation's services, any material decline in enterprise performance would
have an adverse effect on the rating.
The Chickasaw Nation is the 12th largest federally recognized tribe in
the U.S. The majority of its more than 55,000 citizens live within the
13 counties in southern and central Oklahoma or other parts of the state.
The Nation is governed by a tri-partite constitutional governmental
structure. The current governor is in his seventh consecutive term and
is not term limited.
STRONG GAMING REVENUE GROWTH; TX LEGALIZATION OVERHANG REMAINS
Gaming revenues are the Nation's largest revenue source. The majority
are derived from the Nation's flagship casino facility, the WinStar
World Casino, which is located on the Oklahoma-Texas border and serves
the Dallas-Fort Worth (DFW) and Oklahoma City markets. It has about
6,700 slot machines and is one of the largest casinos in the U.S.
The Nation's gaming enterprise operating trends are strong, with stable
EBITDA margins at between 40%-45% from fiscal years 2010 to 2013. The
stability is partly supported by the Nation's considerable reinvestment
in its facilities and improved operations of its 16 different gaming
facilities. Liquidity of the gaming operations is also strong, with $93
million of cash-on-hand at the close of fiscal 2013, up from $83 million
the year prior. Fitch expects that liquidity will remain ample under its
base-case scenario, even if transfers to the Nation's governmental
An ongoing risk to operations is the possibility of gaming legalization
in TX, given the location of the Nation's WinStar World Casino (which
represented about 47% of the Nation's fiscal 2013 gaming EBITDA) near
the DFW market. Previous legislative proposals in Texas to legalize
gaming would have allowed slot machines at racetracks. The Nation
partially hedged this risk through its acquisition of Lone Star Park in
the DFW area in May 2011 via its Global Gaming Solutions, LLC (GGS).
The Texas legislature meets biannually and the next session will
commence in Jan. 2015. Fitch believes the risk of passage remains small
but will monitor any developments.
The Nation continues its diversification efforts by investing in its
smaller facilities and by seeking gaming opportunities outside the
Nation's boundaries through GGS, which also owns Remington Park
racetrack and casino in Oklahoma City.
ESSENTIAL SERVICE AND STABLE PERFORMANCE OF HEALTH SERVICES
The Nation's IHS user population totaled approximately 36,000 in 2013
and the health system also serves a large number of non-Chickasaw Native
Americans from other areas. To accommodate the growng population the
Nation opened its $148.5 million replacement hospital in August 2010,
funded by the series 2007 bond proceeds and equity. The replacement
facility provides significantly expanded inpatient, outpatient, and
ancillary capacity to accommodate the expanding utilization levels.
Ambulatory visits increased to 597,392 in 2013 from 533,074 in 2012,
while the number of pharmacy prescriptions issued increased to 1.2
million from 1 million over the same period.
Healthcare operations exhibited continued stability in 2013, due mainly
to significant growth in the third-party health revenues, which include
Medicare, Medicaid, and private insurance payments. These revenues
increased to $62.8 million from $53.2 million in 2012. IHS funding for
the Nation was most affected by sequestration reductions in 2013 and
totaled $110.3 million compared to $101.6 million in 2012, indicating
that user-growth mitigated the reductions. The total appropriation for
2014 is expected to be $107.5 million, according to a final funding bill
signed on Jan. 17, 2014.
The Nation's health care operations produced an operating surplus of
$28.7 million (unaudited) in 2013, an increase from the $25.4 million
surplus in 2012 (prior to transfers from the gaming enterprise but
includes debt service payments). The Nation covenants to transfer 1.25x
maximum annual debt service (MADS) from gaming to the Department of
Health for debt service; however, because of the strong gains in
third-party revenues, these transfers are not relied on for debt service
and have enabled early paydown of debt: $27 million in fiscal 2011 and
$28 million in fiscal 2013. Currently there are no further plans for
early debt redemption and all debt will retire by 2019. Total
governmental debt outstanding is low relative to the significant amount
of general fund resources on-hand.
SWEEP OF PLEDGED REVENUES; EXCESS COVENANT RESERVES
Pledged health system revenues are swept daily, or when first received,
to the trustee-held bond fund account. The bonds are secured both by the
Nation's full faith and credit and the third-party revenues, which have
experienced good growth. Third-party revenues increased to $62.7 million
in fiscal 2013 from $37.2 million in fiscal 2010. The gross pledged
revenues provided robust 19.6x coverage of MADS in fiscal 2013. The
Nation's only other long-term obligations are roughly $90 million in
property development loans that are repaid by revenues from specific
Additional legal provisions include a liquidity covenant whereby the
Nation must maintain $40 million of its governmental net assets in cash
and minimum fund equity for the health system of $20 million, including
60 days cash on hand. The Nation comfortably exceeds the liquidity
GOVERNMENTAL OPERATIONS REMAIN STRONG
Transfers from the gaming enterprise represent an extremely concentrated
90% of general fund revenues. The amount of the annual gaming transfers
is determined annually by the legislature as part of the Nation's budget
process rather than by a set, formal transfer rate. The gaming transfers
increased by a 10.8% compounded annual average from fiscal years
2009-2012 and increased another 6% in fiscal 2013 (unaudited). The
Nation has increased governmental spending in conjunction with the
higher gaming transfers to support enhanced services for health,
education, family, and housing. Even with the increased spending the
Nation has posted very large operating margins in four of the past five
fiscal years, with a net deficit in fiscal 2010 corresponding with costs
associated with capital investments.
The Nation has a prudent policy of maintaining at least 100% of the
upcoming budget in cash, which provides for a robust fiscal cushion
against potential swings in gaming revenue and federal budget actions
affecting grant income. The general fund concluded fiscal 2012 with a
very large unrestricted fund balance of $185.5 million (1.7x annual
spending). Total fund balance has doubled since fiscal 2009. The general
fund's liquidity position is also very strong: cash, equivalents, and
investments provide nearly 700 days of cash-on-hand.
The fiscal 2013 audit is in progress (Sept. 30 fiscal year) and,
consistent with prior-year reporting, will be completed by the
nine-month federal reporting deadline in June. Unaudited results show an
estimated $32.8 million general fund surplus (26% of spending) after
gaming transfers, and a corresponding increase in fund balance.
The fiscal 2014 budget increased spending by 10.8% ($14.9 million) as
part of an executive branch department re-organization that increased
governmental headcount by 9% and appropriated additional funds for
program and service enhancements. The Nation budgeted a $141 million
gaming dividend, lower than the $143 million transfer last year, though
the Nation has ample carry-forward reserves to support the recurring
costs for the near term. Fitch believes that the general fund's ample
fiscal cushion and the discretionary nature of the spending increases
indicate a good degree of budget flexibility in the event of unforeseen
revenue declines from weakened gaming performance.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012);
--Corporate Rating Methodology (Aug. 8 2013);
--U.S. Nonprofit Hospitals and Health Systems Rating Criteria
(Aug. 8, 2013).
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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