Tribal Casino Defaults May Sink Creditors

As the Native American tribe that own the Foxwoods Resort Casino in Connecticut looks poised to become the biggest defaulter yet on tribal casino debt, holders of billions of dollars of tribal debt are questioning whether US laws apply to tribes operating as sovereign nations. “With casinos such as Foxwoods located on sovereign tribal land potentially out of reach of US bankruptcy law, it remains unclear whether creditors could enforce their rights,” an observer told the Financial Times.

The Foxwoods default will serve as a litmus test for many legal issues in tribal debt. If a tribe is considered a governmental unit, it may not qualify for Chapter 11 bankruptcy protection. It is also uncertain whether Foxwoods creditors could seize or purchase assets or receive equity in exchange for debt forgiveness, as often occurs in debt restructuring. (More casino stories.)