Fitch: Pinnacle Remains on Rating Watch Negative on Atlantic City Sands Agreement.

NEW YORK -- Pinnacle Entertainment (PNK) announced on Sept. 5 it was acquiring the Atlantic City Sands from Atlantic Coast Entertainment Holdings Inc., which is controlled by Carl Icahn, for roughly $270 million. Fitch's ratings for Pinnacle remain on Rating Watch Negative at this time.

Fitch's ratings on Pinnacle are:

--Issuer Default Rating (IDR) 'B';

--Bank facility 'BB/RR1';

--Sub notes 'CCC+/RR6'.

On March 13, Fitch had placed PNK on Rating Watch Negative following its announcement of a merger agreement with Aztar Corp. While Pinnacle eventually lost out to Columbia Sussex in a bidding war for Aztar, Fitch maintained its Negative Rating Watch. After Columbia Sussex's successful bid, Pinnacle maintained that entering the Las Vegas and/or Atlantic City markets was a strategic priority and Fitch believed there were enough potential sellers that another acquisition opportunity was likely in the near term, which could have negative credit implications. Fitch will review the terms of the transaction, the potential size of the project, and the impact on its current ratings prior to resolution of the Rating Watch.

PNK's liquidity was $856 million as of June 30, which consisted of $372 million in cash and $484 million available on its credit facility, so the company does not need financing for the transaction.

Pinnacle currently operates five casinos: one in southeast Indiana, one in Reno, Nevada, and three in Louisiana. In second-half 2006, Pinnacle will begin room expansions at three of its existing properties and is in the process of acquiring the President Casino in St. Louis, Missouri. PNK will expand in the St. Louis market with one new casino opening in 2007 and a second in 2008. PNK also plans to open a second property in Lake Charles, Louisiana in 2009. Thus, the company already has a very solid and aggressive pipeline of growth that will be extended if this transaction is completed. The Atlantic City (AC) market is likely the second most gaming-friendly market from a regulatory standpoint and Fitch recognizes the long-term value of entering the AC market and further diversifying the company's cash flow.

The AC Sands will be shut down within 70 days following the close of the acquisition, which is expected to occur by the end of this year. A project timetable was not announced, but the swift closure will make the process move more quickly. A 24- to 36-month construction period after closure would mean a 2009-2010 opening.

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