NIGC Issues New Guidance on Financing Document Reviews and Declination Letters
The National Indian Gaming Commission (“NIGC”) issued guidance this week for tribes and tribal lenders who submit loan documents to the NIGC for a so-called “declination letter.” Bulletin No. 2021-4, “Submission of Loan Documents and Financing Documents for Review,” summarizes criteria the agency has developed in the last decade for determining whether loan documents constitute “management” contracts, which under federal law must be approved by the NIGC Chairman or they are void. The Bulletin states that while the Office of General Counsel will continue to review loan documents and issue opinions as to whether the documents provide the lender with the ability to manage the gaming operation, contracts that “adhere to the principles and analyses” outlined in the Bulletin would likely receive an opinion letter that the contract does not need to be submitted for approval as a management contract.
The criteria and the agency’s conclusions are:
Security interest in gross gaming revenues: the pledge of a security interest in the gross gaming revenue of a tribal gaming operation does not constitute control if (1) operating expenses are exempted from the security interest; or (2) the lender is expressly prohibited from exercising management controls using what has become standard “IGRA savings” language developed by the agency.
Appointment of a receiver: the appointment of a receiver over gross gaming revenue may give a third party substantial management control over a tribal gaming operation unless (1) the provision providing for appointment of a receiver includes express management limitations or (2) operating expenses are removed from the receiver’s authority.
Consent from outside parties: contracts that require consent or approval of any party other than the tribe prior to the tribe taking management actions, such as hiring or firing a management company, general manager, or making capital expenditures, constitutes management of the operation. A contract does not become a management contract, however, if a tribe makes a management decision that is reflected in the contract, such as the qualifications for a general manager or a minimum amount to spend on capital expenditures during a specific time
Mandatory implementation of others’ recommendations: if the contract requires the tribe to implement the recommendations of another party, a consultant or other persons as to its gaming operation, it constitutes management. A tribe can agree at the outset in a contract to take specific acts or refrain from taking specific acts, including acting or refraining from acting as a consequence of the occurrence of events specified in the contract. A contract does not become a management contract if it includes specific, objective criteria for the selection of consultants, employees, or auditors, and the like.
Insurance purchases and proceeds: a contract that requires the tribal party to purchase a specific type and amount of insurance or to engage an insurer who meets objective criteria and standards is not a management contract. Contracts may provide how insurance proceeds will be distributed, grant a security interest in insurance proceeds, and permit the lender to purchase insurance without becoming management contracts.
The criteria issued this week developed after a decision of the U.S. Court of Appeals for the Seventh Circuit in which a bond indenture was found to be void as an unapproved management contract.
The agency also issued Bulletin No. 2021-6, “Sole Proprietary Interest,” providing guidance as to when a contract violates IGRA’s requirement that the tribe retain the sole proprietary interest in its gaming. While the Office of General Counsel will continue to review contracts submitted by tribes and opine as to whether they violate the sole proprietary interest requirement, contracts that “adhere to the principles and analyses” outlined in the Bulletin would likely receive an opinion letter that the contract does not violate IGRA’s sole proprietary interest requirement.
The criteria the agency uses to determine whether a tribe has the sole proprietary interest in its gaming operation are:
Term of relationship with a third party;
Amount of revenue paid to the third party;
Right of control provided to the third party over the gaming activity.
Any one factor or a combination of the factors may constitute a violation of the sole proprietary interest requirement. The Bulletin provides eight examples of violations of the requirement which include: (1) a third party possessing a security interest in a gaming operation if the interest gives the party the right to control in the event of default the operation or its operating revenue; (2) a third party’s right to seek the judicial appointment of a receiver over the gaming operation or its operating revenue; (3) a third party having control or the right to control a tribe’s gaming regulations; and (4) a vendor controlling gaming devices in a tribe’s gaming facility.
Tribes and lenders who seek a declination letter from the Office of the General Counsel as to their loan documents usually request in the same letter that the Office of General Counsel find the loan documents do not violate IGRA’s sole proprietary interest requirement.
For most commercial lenders and tribal borrowers, the NIGC’s recent guidance comports with current practice in the tribal gaming lending industry. In the future, each financing party will need to decide on a case-by-case basis if a declination letter is required for a particular financing transaction. We expect such determination will be based upon a number of factors, including a financial institution’s individual credit and risk assessment, whether a financing transaction raises novel terms and the extent to which legal counsel can provide sufficient legal comfort that the loan documents are not management contracts.
 Bulletin No. 2021-4 at 2.
 25 U.S.C. § 2710(b)(2)(A).
 Bulletin 2021-6 at 2.