Correction: Fitch Affirms Harrah's On Post-Colony Asset Sale Deal; Caesars Remains On Watch Positive.

NEW YORK -- (This is an amended version of a press release issued earlier today and contains a revised headline, indicating that Caesars is remaining on Rating Watch Positive and not being affirmed.)

Fitch Ratings has affirmed the senior unsecured and subordinated debt ratings of Harrah's Entertainment (HET; 'BBB-/BB+'; Stable Outlook). Caesars Entertainment (CZR; 'BB+/BB-') remains on Rating Watch Positive by Fitch. The action follows the Sept. 27, 2004 announcement that HET and CZR have reached an agreement to sell two properties each to an affiliate of Colony Capital for $1.24 billion in cash or 8.5x LTM EBITDA. HET properties include Harrah's East Chicago and Harrah's Tunica, and CZR properties include the Atlantic City Hilton and Bally's Tunica.

Proceeds from the sale will be used to reduce debt at both HET and CZR prior to their pending merger. Net of asset sales, Fitch estimates the pro forma leverage of the combined entity will be in the 4.5 times (x) range, assuming a fiscal year-end (FYE) 2004 close. Notably, this level of asset sales and debt repayment was contemplated in Fitch's original review in July of the potential merger of HET-CZR. While initial leverage is high for the category, Fitch expects leverage to decline to a more acceptable range within twelve-eighteen months. Fitch projections suggest that the combined entity will have the capacity to reduce leverage to below 4.0x by FYE 2005. Discretionary capex is expected to remain heavy through 2005, but falls off in 2006, producing $600-$700 million in free cash flow.

Fitch believes the sales alleviate a level of regulatory risk in completing the merger. In Indiana, the sale of Harrah's East Chicago allows the combined entity to comply with the legal limit of two licenses. In Atlantic City, where HET would own five of twelve properties, and Tunica, where the company would own five of nine, the sales should lessen potential anti-trust concerns of the FTC and/or state regulators. Strategically, Fitch views lower exposure in these regions as a positive given significant new competitive threats in Atlantic City (The Borgata and legalized gambling in Pennsylvania) and stagnant growth of the Tunica market over the last several years.