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Announcement:

Moody's comments on Pennsylvania slot licenses

21 Dec 2006
Moody's comments on Pennsylvania slot licenses

New York, December 21, 2006 -- On December 20, 2006, The Pennsylvania Gaming Control Board ("PGCB") announced that it awarded five permanent licenses for stand-alone slot parlors pursuant to Pennsylvania's ("PA") gambling enabling law that allows for up to 61,000 slot machines at 14 sites throughout PA. Las Vegas Sands, Corp. (Ba3/stable) and The Mashantucket (Western) Pequot Tribe (Baa2/stable) were among rated gaming issuers that received a stand-alone slot parlor license. Las Vegas Sands was selected to construct and develop a gaming complex in Bethlehem, PA while The Mashantucket (Western) Pequot Tribe ("Foxwoods") was awarded a license to construct and develop a gaming complex in Philadelphia, PA. The Las Vegas Sands and The Mashantucket facility are expected to house 5,000 and 3,000 slot machines respectively, and both gaming facilities are expected to open in 2008.

While the development of a gaming facility in PA will provide Las Vegas Sands with additional diversification, and is believed to have a good long-term risk/reward profile, it will not likely impact Las Vegas Sands' restricted group ratings in the intermediate-term given Moody's assumption that the PA facility would likely be financed on a non-recourse basis. Additionally, a PA gaming facility would represent a relatively small portion of Las Vegas Sands' consolidated and restricted group revenue, assets, and cash flow from operations in the intermediate term. According to Moody's Global Gaming Methodology, Las Vegas Sands' size metrics currently map to the 'Ba' indicated rating category and are not likely to increase enough to warrant a 'Baa' indicated rated category just because of the addition of a PA gaming facility. Additionally, the company already has a "Significant" development history, the highest possible designation attainable.

Similar to Las Vegas Sands, the addition of a PA gaming facility will provide Foxwoods with additional diversification. The new development is also believed to have a good long-term risk/reward profile. However, it will not impact Foxwoods' ratings in the intermediate term based on the expectation that its PA facility will also be financed on a non-recourse basis through Foxwoods Development Corporation which owns 30% of the partnership that was awarded the license.

The five awarded stand-alone slot parlor licenses follow the PGCB's September 2006 award of conditional gaming licenses to six of the existing horse racetracks in PA. Conditional licenses allow racetracks to operate a temporary facility until a permanent license is granted. Rated gaming issuers that currently own existing racetracks include Harrah's Operating Company, Inc. (Baa3/on review for possible downgrade), MTR Gaming Group, Inc. (B1/stable), Penn National Gaming, Inc. (Ba2/stable), Mohegan Tribal Gaming Authority (Ba1/stable), PA Meadows, LLC (B3/stable), and Greenwood Racing, Inc. (B2/stable). In total, PA's gambling enabling law allows for fourteen licenses. Seven of these licenses are for existing horse racetracks (six of which have been issued). Five are for stand-alone slot parlors. Two of the fourteen licenses are reserved for resort-type operations that will have at least 275 hotel rooms and will be allowed a maximum of 500 Class III slot machines.

Rated issuers that will be most affected by gaming in PA, albeit to different degrees, can be separated into two groups: (1) rated gaming issuers that received a PA gaming license and have no existing gaming operations in neighboring jurisdictions, particularly Atlantic City or West Virginia; and (2) rated gaming issuers that do not have a PA gaming license and have a gaming property in neighboring jurisdictions such as Atlantic City or West Virginia.

The return profile of the new development and the impact on an issuer's overall return is the primary risk facing rated gaming issuers that have no existing gaming operations in neighboring jurisdictions. The issuers exposed to this risk include Las Vegas Sands, Penn National, Mohegan Tribal Gaming, Foxwoods, PA Meadows, and Greenwood Racing. Additionally, in some cases, the benefits realized from increased scale and diversity will be partly offset by the impact that any additional debt related to the development will have on an issuer's profitability and leverage and coverage factors.

The primary risk for the rated issuers in the second group which includes Trump Entertainment Resorts Holdings, L.P. (B3/stable), Wheeling Island Gaming, Inc. (B2/stable), and others, is that PA is either a primary or secondary feeder market to some or all of their casinos. In Atlantic City, existing casino properties will likely feel the impact of the two slot parlors opening in Philadelphia. These new facilities will likely take customers from Eastern PA and New Jersey. Issuers with West Virginia gaming operations will face increased competition as a result of casinos that will open in southwestern PA.

Separately, a "High Risk" regulatory risk designation has been assigned to PA in accordance with Moody's Global Gaming Rating Methodology. The "High Risk" designation considers that PA does not yet have an established history of a stable and supportive gaming environment. The state's "High Risk" designation could change as its regulatory environment evolves. The longer PA is involved in full scale gaming operations, and the better its track record of maintaining a stable and supportive regulatory environment, the lower the regulatory risk and the greater the likelihood its regulatory risk designation will improve to "Moderate Risk". However, if PA were to become more onerous as it relates to gaming regulations and/or taxes, it would likely maintain its "High Risk" regulatory designation for at least several years.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Keith Foley
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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