By JAMES FINK
jfink@bizjournals.com | 716-541-1611

The bitter dispute between the Seneca Nation of Indians and New York state concerning slot-machine operations at Upstate horse racing tracks has moved to Wall Street.

Moody's Investors Service on Monday downgraded the bond rating of Seneca Gaming Corp. - the casino operations arm of the Seneca Nation - from Ba2 to B1. Moody's hinted it may further cut the bond rating if the dispute continues.

At issue is the decision by Seneca leaders to withhold more than $214 million in payments to New York that were due under terms of a 2001 compact negotiated between the state and the Indian tribe. The compact covers the Senecas operating three local casinos - Seneca Niagara Casino & Hotel in Niagara Falls, Seneca Buffalo Creek Casino in downtown Buffalo and Seneca Allegany Casino & Hotel in Salamanca. Combined they employ more than 4,000 people and attract more than 10 million visitors annually.

Under terms of the compact, Seneca Gaming is obligated to pay New York 25 percent of its annual slot-machine revenues.

It has withheld those payments since late last year in protest over the state allowing "Moxie Mania" machines to be installed at racinos at Batavia Downs and Fairgrounds Raceway in Hamburg.

The payments also are being withheld as part of the Senecas' legal battle with New York concerning its attempt to collect $4.35 in new taxes on each pack of cigarettes sold on sovereign territory. The tax, which went into effect Sept. 1 for all tobacco sales in New York, is being challenged by the Senecas and two other tribes in federal court. New York wants to collect $110 million with the new tobacco tax.

What has Moody's concerned is an Oct. 6 letter from Peter Kiernan, special counsel to Gov. David Paterson, that went to Barry Snyder Sr., Seneca Nation president. In it he said that unless the slot-machine revenue issue is resolved by Oct. 20, New York could terminate the compact. That would put the Senecas' gaming operations at risk of being shut down.

Last week, they offered to make the payments directly to the host communities of Buffalo, Salamanca and Niagara Falls instead of New York as a compromise. New York has not responded to the offer.

Seneca Gaming has $500 million in notes that are due for repayment in 2012, and Moody's analysts said if casino operations are terminated because of the dispute, the chance of making that payment would be minimal.

"In the extreme event that a settlement is not reached and the compact is terminated, the SGC's ability to operate a Class III gaming facility would be in jeopardy," Moody's stated.

That's being questioned by Seneca Gaming leaders.

"Seneca Gaming Corporation has consistently produced some of the strongest financial results in the gaming industry," said Cathy Walker, president and CEO. "Our attention to responsible operations and management, bottom line performance and the highest levels of customer service have helped set us apart from our peers. We are proud to be one of the strongest and most successful private employers in Western New York, and intend to remain focused on building upon that record."

Seneca Gaming reported third-quarter results of $24.1 million profit, with gaming revenues up 2 percent to $140 million. Net slot-machine revenues increased by 3.2 percent to $126.6 million and non-gaming revenues went up 2.8 percent to $26.7 million. The third quarter ended June 30.