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Rating Action:

Moody's downgrades Bally's CFR and bank debt to Ba3; outlook is stable

11 Apr 2011

Approximately $375 million of rated debt affected.

New York, April 11, 2011 -- Moody's Investors Service today downgraded Bally Technologies, Inc.'s (Bally's) Corporate Family and Probability of Default ratings to Ba3 from Ba2 following the company's announcement that it will pursue a debt-financed tender offer to purchase up to $400 million of its common stock representing between 18.9% and 21.9% of its outstanding shares via a modified "Dutch auction". Moody's also lowered the ratings on the company's term loan and revolving credit facility to Ba3 from Ba2. Bally's has an SGL-1 Speculative Grade Liquidity rating.

Bally's planned share purchase is expected to be funded from a new five-year bank credit facility, comprised of a $300 million term loan and a $400 revolving credit. These new facilities will also be used to repay the company's existing $164 million term loan and any loans outstanding under the existing revolving credit facilities.

The downgrade reflects the significant increase in leverage that is expected to result from the stock repurchase, and Moody's view that the decision to pursue a stock repurchase represents a substantially more aggressive financial policy on the part of the company. Moody's estimates that on a pro-forma basis, debt to EBITDA could increase up to 2.4 times from 0.8 times at December 31, 2010, assuming the company maintains cash balances of approximately $130 million. Although debt/EBITDA of 2.5 times is typically considered low for a Ba3-rated issuer, we expect gaming manufacturers to maintain better-than-average credit metrics for a given rating category, largely because of the high degree of technology risk and narrow product focus associated with its business.

RATINGS RATIONALE

Bally's Ba3 Corporate Family Rating reflects the company's good product line-up, stable market share, and solid returns. The ratings also reflect the high level of technology and game development risk as well as the risk that player acceptance of existing games in place on casino floors under profitable rental and daily fee arrangements could wane causing a decline in its installed base.

The stable rating outlook considers Bally's very good liquidity profile -- cash on hand and internally generated cash is expected to support capital spending, and required debt amortization during the next 12-18 months -- and Moody's expectation that lower earnings from the product and systems segments will be offset somewhat by higher earnings from the game operations segments. As a result, Bally's should be able to maintain debt to EBITDA at or below 2.5 times.

Bally's ratings could be downgraded if debt to EBITDA increase to 3.0 times for any reason, or if the company is unable to maintain its strong product pipeline or begins to lose market share. A rating upgrade could be considered if debt to EBITDA declines to 1.5 times and it appears likely to remain around this level given the company's financial and strategic priorities.

Ratings downgraded:

Corporate Family Rating to Ba3 from Ba2

Probability of Default Rating to Ba3 from Ba2

$154 million term loan due 2012 to Ba3 (LGD 4, 50%) from Ba2 (LGD 4, 51%)

$75 million revolving credit facility due 2012 to Ba3 (LDG 4, 50%) from Ba2 (LGD 4, 51%)

$75 million revolving credit facility due 2014 to Ba3 (LDG 4, 50%) from Ba2 (LGD 4, 51%)

Bally Technologies, Inc. manufactures, distributes and operates games devices and computerized monitoring and accounting systems for gaming devices sold to the legalized gambling industry. The company generates annual revenues of about $780 million.

The principal methodologies used in this rating were Global Business & Consumer Service Industry Rating Methodology published in October 2010, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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

New York
Keith Foley
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 downgrades Bally's CFR and bank debt to Ba3; outlook is stable
No Related Data.
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