Quechan Tribe gaming bonds rated

8 January 2008

--Governmental Project Bonds series 2007 (Tax-Exempt) at 'BB-';

--Issuer Rating at 'BB-'.

The Rating Outlook is Stable.

Approximately $160 million gaming enterprise revenue bonds are expected to price via negotiation with JP Morgan and are due Jan. 1, 2018 and 2025. The bonds are subject to monthly mandatory sinking fund payments sufficient to amortize the bonds by maturity. Quechan issued approximately $45 million of governmental project bonds in December 2007. The governmental project bonds are due Dec. 1, 2027 and are also subject to monthly mandatory sinking fund payments sufficient to amortize the bonds by maturity.

The 'BB-' issuer rating for the Quechan Tribe (the Tribe) is supported by the stable operating performance of its existing casino operations, which are the Tribe's main economic driver and primary source of cash flows. The Tribe currently operates two casinos, located on adjacent parcels of land straddling the Arizona/California border, which have a history of producing strong and stable cash flows. The gaming revenue bonds benefit from a security interest in the cash flows of Quechan's present and future gaming operations. The governmental project bonds are an unsecured general obligation of the Tribe, payable from all available net assets and subordinate to the interests of senior obligations, which include the gaming enterprise revenue bonds. Available net assets will largely be comprised of cash flows of the gaming operation after debt service on the gaming enterprise revenue bonds.

Quechan is issuing debt to construct a replacement facility for its current California casino. The project represents a significant expansion and upgrade from the existing facilities, which offer a limited set of amenities, and cater mostly to a local market. The expanded facility will benefit from a prime location on I-8, a major east/west transportation route, and approximately one mile from the U.S./Mexico Andrade Border crossing. The project will provide a level of diversification that is lacking in the existing operations, enabling the Tribe to attract a broader market segment at the new facility. There will be no business disruption during construction, as the project site is located approximately eight miles from the existing facilities, both of which will remain open during construction.

Based on fiscal 2008 projected gaming enterprise earnings before interest, taxes, depreciation and amortization (EBITDA) at the current facilities, and pro forma for the $205 million in total issuance, debt to EBITDA is expected to peak at 4.1 times (x). Following the realization of cash flows of the California casino project, debt-to-EBITDA is expected to normalize at roughly 2.9x in fiscal 2011.

Fitch notes that Quechan is uniquely positioned in relation to regulatory risk relative to other Native American gaming issuers in that it operates facilities under compacts with two states. In addition, the competitive environment is somewhat more favorable for the Quechan than for other Native American gaming operators in the Southern California market, with only one competitor located within a 75 miles radius and no other tribe with trust lands located along I-8 until the closet competitor facilities, located 110 miles west.

Offsetting the strengths in Quechan's credit profile are concerns including the limited experience of the current management team. Fitch believes that the current management team lacks the depth of experience to effectively manage the new casino and resort, which will include a much more intensive offering of both gaming and non-gaming amenities, as well as a hotel property. Quechan recognizes this issue and has developed a plan to strategically hire management personnel where they do not currently have expertise prior to project opening.

Of additional concern, the demographic profile of the target market indicates a relatively low income consumer. The clientele of the existing facilities includes residents of the primary market area, which encompasses a 75 mile radius from Yuma, AZ, as well as winter residents of Yuma. Given the higher quality and associated higher price point of the planned California casino amenities, Fitch believes that the success of the project somewhat depends on management's ability to broaden the target market. In order to accomplish this, Quechan plans to market the new property to a wider area, believing the improved amenities will draw tourists from the San Diego area, and the superior location will allow for increased capture of traffic and pedestrian flow from the Andrade border crossing and I-8.

There have been political difficulties related to the location of the California casino project. A group of tribal members have protested the location of the project because they believe it is culturally significant ground and should not be developed. If the construction is delayed by legal action, the Tribe could continue to operate at the current California facility, producing adequate cash flows to cover debt service, but failure to complete development of the project by Dec. 1, 2009 would be an event of default under the gaming enterprise Indenture, which could cause an acceleration of principal payment. This may require Quechan to re-finance the bonds. Fitch believes Quechan would have the ability to successfully re-finance the debt given the previously noted strength of cash flows of the existing operations. To date, the large majority of the earth moving required by the project has been completed and no culturally significant items have been uncovered.