BOK scrambles to stem losses from shuttered tribal casinos

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When BOK Financial took its once local business of lending to Native American casinos national in 2018, executives never suspected revenues from gaming would vanish overnight.

The $47.1 billion-asset company in Tulsa, Okla., holds a roughly $1 billion portfolio of loans to 38 tribal nations in 10 states, up from about $650 million two years ago. Roughly 80% of the book is related to gaming. But hundreds of Native American casinos remain shuttered to prevent the spread of the novel coronavirus, which has hit American Indian country especially hard.

“There are few industries where the revenue has gone to zero overnight,” said Jarrod Compton, the company's director of Native American financial services. “This is definitely one of them.”

Patrons play slot machines at the Mohegan Sun at Pocono Downs in Wilkes-Barre, Pa.

So far, executives say they are not concerned about taking heavy losses from the business, nor have they provided any estimates.

But that’s only after months of granting forbearances on debt payments, waiving key covenants and some nail-biting about whether the company’s casino clients would be able to access the Small Business Administration’s Paycheck Protection Program.

Lending to tribal casinos is complicated by sovereign land restrictions that prevent banks from counting underlying land or property as collateral. Instead, BOK normally would require a troubled casino to stay open and seize control of its revenue stream in an effort to prevent default.

Sarah Alexander, portfolio manager of BOK’s Native American loan book, said the bank has suspended some requirements that casinos stay open while the pandemic continues to grip Native American communities.

Alexander said because of the nature of the collateral, this kind of lending is often conservative.

“We’re not overly concerned by this portfolio,” Alexander said.

Analysts covering the company have raised questions about the book as a small number of casinos are experimenting with how to open their doors again and if it would be worth doing.

BOK’s “gaming exposure is all located on Indian reservations with substantial liquidity positions,” analysts at SunTrust Robinson Humphrey said in a May 19 note to clients after meeting with company officials. “Casinos are starting to reopen, and demand appears to be strong.”

Still, as the SBA rolled out the paycheck program lending in March, gaming companies were declared ineligible. BOK’s team watched in hopes that policy would change. While BOK says it did not lobby on the issue, tribal organizations like the Native American Finance Officers Association spent weeks pushing for a change to allow gaming businesses access the program.

“Tribes and states with legal gaming enterprises worked hard to oppose this limited and arbitrary criteria for inclusion within the program,” the association said in a policy bulletin April 24, the same day the SBA reversed its stance.

BOK began ushering some of its tribal clients through the process provided they met other requirements like the 500-employee limit and were organized under certain corporate structures.

Borrowers tied to about 20% of BOK’s book were able to access the program, Alexander said.

The $2.2 trillion coronavirus relief law enacted in late March contained about $8 billion in funds to help Native American tribes stem the spread of the disease and repair some of the economic damage from the shutdown, and many of BOK’s tribal clients used that money to keep their casino operations going and debts paid.

There are more than 5,400 confirmed cases of COVID-19 across Navajo nation, more than in many states. Native Americans have so far accounted for more than half of deaths related to the disease in New Mexico, according to the state’s department of health.

A survey conducted by the Federal Reserve Bank of Minneapolis at the end of April showed that 30% of tribal governments and enterprises laid off or furloughed between 80% and 100% of their employees, “with gaming-related enterprises among the hardest hit,” the researchers said.

The industry is likely to need more assistance, Ernest Stevens, chairman of the National Indian Gaming Commission said in a May 21 op-ed on the Indian Country Today website. Stevens pointed directly to the $20 billion aid legislation for tribal governments passed by the House of Representatives in May. Without it, conditions for Native American tribes and their businesses could continue to suffer, Stevens wrote.

“Despite its disjointed implementation, the CARES Act provided some initial relief,” Stevens said. “More must be done to improve the CARES Act and provide more resources to help Indian Country through this crisis.”

BOK took questions from analysts during its first-quarter conference call on April 22 about its exposure to Native American casinos. Stacy Kymes, the company’s executive vice president of corporate banking, said executives were confident that tribes had enough reserves to cover costs “through a reasonable closure period.”

It’s unclear what the impact would be if a second wave of the virus forces the casinos that have opened to close again.

“Who knew that we would have that portfolio closed for 60 days,” Alexander said, adding, “it’ll be interesting to see what happens in the fall.”

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Commercial lending Coronavirus Credit quality BOK Financial SBA Risk management