Fitch Ratings has upgraded Seminole Gaming’s bonds to investment grade, citing improved governance, overall resilience of gaming results and a stable outlook. The ratings apply to $1.74 billion of Seminole Tribe of Florida's (STOF) outstanding gaming division bonds and term loans, which were upgraded to 'BBB-' from 'BB+,' which is sub-investment grade. Approximately $528 million of STOF's special obligation bonds remain below grade, after being upgraded to 'BB+' from 'BB'.

The upgrade of STOF's ratings reflects Fitch's increased level of comfort about the tribe's governance practices since the agency downgraded all of STOF's ratings out of investment grade in June 2010. The downgrade in 2010 followed an issuance of a Notice of Violation (NOV) letter to the tribe by the National Indian Gaming Commission (NIGC). The NOV cited the tribe's failure to comply with the tribe's own bylaws and the Indian Gaming Regulatory Act (IGRA) with respect to allocating gaming related revenues.

Since the downgrade, STOF has cured all of the violations cited in the NOV and has entered into a Civil Fine Assessment (CFA) agreement with the NIGC. The tribe agreed to pay a $500,000 fine and agreed to undergo three annual audits of its adherence to the use of net gaming revenue provisions. So far the tribe completed two clean audits. “Importantly, STOF canceled its tribal council's discretionary accounts, which historically increased the risk of mismanaging gaming revenues with respect to RAP compliance,” the ratings agency stated.

The Seminole tribe operates six major casinos throughout the state of Florida, including two flagship Hard Rock branded properties in Tampa and Hollywood. STOF recently expanded its casino in Coconut Creek adding 700 slot machines, 34 table games, a new parking structure and additional amenities. The Tampa Hard Rock is also undergoing an expansion which will add 750 new slots and a 1,200 space parking structure by the end of this June.

“STOF's gaming division operating performance has been resilient through the 2008-2009 recession and the period of heavy expansion of slot machines at the pari-mutuel facilities in the Miami-Dade and Broward Counties (mostly in late 2006/early 2007 and late 2009/early 2010),” noted Fitch. “The resiliency can be largely attributed to STOF's strong market position and the conversion to Class III slots and addition of table games starting 2008. Gaming division's revenues exhibited strong uninterrupted growth over the last five years with the exception of fiscal 2010, when revenues were flat.”

As for the threat of expanded casino gaming in Florida, Fitch believes there is a low likelihood that an integrated resort proposal passes in the near-term, “since it faces heavy opposition from STOF, the pari-mutuels, the Orlando theme-park companies and other interest groups”. If it eventually passes, Fitch expects the impact on STOF's financial profile will be "manageable." Per the compact agreement, STOF would be able to stop making the compact fee payments from its Broward County casinos (Hollywood Hard Rock and the non-branded casinos in Hollywood and Coconut Creek) which account for about half of the gaming division's revenues. Other facilities in Immokalee, Tampa and Brighton would not be directly impacted, Fitch said.