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Announcement:

Moody's affirms MTR Gaming's B3 CFR; outlook negative

Global Credit Research - 14 Dec 2010

Approximately $385 million rated debt affected

New York, December 14, 2010 -- Moody's Investors Service today changed the rating outlook on MTR Gaming Group ("MTR") to negative from stable and affirmed all the existing long term ratings.

The following ratings were affirmed:

Corporate Family Rating -- B3

Probability of Default Rating -- B3

$260 million Senior Secured Notes due 2014 -- B2 (LGD3, 35%)

$125 million Senior Subordinated Notes due 2012 -- Caa2 (LGD5, 87%)

The negative outlook considers the refinancing risk associated with MTR's $125 million Senior Subordinated Notes which become current in June 2011. "Although we believe MTR should be able to refinance given its current leverage of approximately 5.0x debt/EBITDA and relatively stable EBITDA, the persistent topline pressure at its Mountaineer Casino in West Virginia and longer-term threat from Ohio's new casinos, could affect its ability to refinance timely or at favorable terms, thus a concern," commented Moody's lead analyst John Zhao. Additionally, any comprehensive refinancing could probably result in more debt and higher annual interest cost, further impairing MTR's already weak interest coverage and free cash flow. As of September 30, 2010, MTR's EBIT/Interest was around 0.9x and free cash flow was slightly positive. The outlook revision also incorporates the tough operating environment MTR is still faced with, such as increased regional competition and weak gaming demand.

"MTR's ratings will likely be downgraded if we believe the company will not be able to refinance by Mid- 2011 or terms of the refinancing would result in weakened credit metrics," added Zhao.

The B3 CFR continues to reflect the longer-term challenges MTR will likely face when the new casinos in Cleveland and Columbus, OH are expected open in the next 2-3 years, as both of MTR's properties draw a significant percentage of its patrons from Ohio. (76% for Mountaineer's and 44% of Presque Isle Downs' slot players are Ohio residents) Moody's acknowledges that the proposed installation of video lottery terminals (VLTs) at MTR's Scioto Downs racetrack in Ohio could mitigate some of the negative impact. However, it remains unclear that the incoming governor of Ohio will approve the plan. Further, Moody's views that MTR's current capital structure and liquidity position may constrain its ability to fund the VLT project without obtaining additional financing.

More positively, the rating affirmation considers the relatively stable EBITDA despite the topline pressure, in part due to the implementation of cost containment programs as well as the increased contribution from Presque Isle Downs & Casino after its timely opening of table games in July 2010. The affirmation also reflects our expectation that total debt/EBITDA will remain below 5.5x and EBIT/Interest around 1.0x, and liquidity would be adequate in the next year.

For more information, please refer to an update credit opinion at moodys.com.

The principal methodologies used in this rating were Global Gaming published in December 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

MTR (Nasdaq: MNTG), through its subsidiaries, owns and operates Mountaineer Casino, Racetrack & Resort in Chester, West Virginia; Presque Isle Downs & Casino in Erie, Pennsylvania and Scioto Downs in Columbus, Ohio. MTR reported net revenues of approximately $424 million in the last twelve months ended September 30, 2010.

New York
Zhenyu Zhao
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms MTR Gaming's B3 CFR; outlook negative
No Related Data.
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