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Moody's takes a negative view on Atlantic City

11 January 2010

LAS VEGAS, Nevada -- Count Moody's Investors Service among those taking a dim view of Atlantic City in light of Pennsylvania's legalization of table games last week.

Pennsylvania gaming regulators believe the state's slot machine-only casinos could add blackjack, roulette and craps tables within the next six to nine months — bad news for Atlantic City casino operators.

Moody's Senior Vice President Keith Foley said Pennsylvania tables games adds "a negative development for the credit profiles of already-suffering casino operators in nearby Atlantic City."

In a report to investors, Foley said Atlantic City casino operators, already suffering from weak gaming demand and increased competition from Pennsylvania slot machines, will see further declines in gaming revenues because of the new table game legislation.

"Atlantic City generates over $1 billion a year from table games, which accounts for 30 percent of its total annual gaming revenue." Foley wrote. "This represents a large potential market for Pennsylvania, particularly for casinos located in the eastern part of the state and in relatively easy driving distance to Atlantic City."

Foley said casino operators Las Vegas Sands Corp. and Penn National Gaming, each of which owns a casino in eastern Pennsylvania, could pick up additional gaming revenue that will likely come into the state to the detriment of Atlantic City casinos.

However, Foley does not believe table games will be enough to positively affect the ratings of the companies because Las Vegas Sands and Penn generate a majority of their earnings from casinos outside of Pennsylvania.

"Likewise, we don't think this development will affect the already low ratings of Harrah's Entertainment, although it could limit the company's ability to improve its rating over the longer-term given its large concentration in Atlantic City," Foley said.