Fitch Ratings Affirms Long-Term Debt Ratings of Harrah's.

NEW YORK -- Fitch Ratings has affirmed the long-term debt ratings of Harrah's Operating Co. (HOC), a wholly owned operating subsidiary of Harrah's, Entertainment (NYSE: HET)and assigned a 'BBB-' rating to the new $4 billion revolving credit facility due in April 2009. At the same time, Fitch has resolved the Positive Rating Watch status on the senior unsecured and subordinated debt ratings of Caesars Entertainment (CZR) with respective upgrades to 'BBB-' and 'BB+'. The rating action follows completion of Harrah's acquisition of CZR on June 13, 2005.

With closing of the CZR acquisition, CZR has been merged into HOC, a wholly owned operating subsidiary of HET, where virtually all the debt and assets reside. Pre-existing debt in the structure currently benefits from a holding company guarantee, and as per the governing indentures, allows HET to file consolidated financial statements as a proxy for HOC. HET is currently soliciting consents from CZR bondholders to also allow HET to file at the parent level, and in exchange will provide CZR debt with the parental guarantee. Fitch believes this to be a technical issue that CZR bondholders will acquiesce to. However, in the event that CZR public debt holders do not consent, the debt will not be guaranteed. Fitch finds the resulting structural subordination of CZR notes not meaningful given the very limited risk that HET would not support the CZR debt ratably, and the fact that there are virtually no assets at the holding company level. As such, regardless of the outcome of the consent offer (which should be resolved in the next few weeks), CZR ratings will be equalized with those of HOC.

Strategically, the acquisition allows HET to establish a stronger presence on the Las Vegas Strip and reduces exposure to the more volatile regulatory environments of regional riverboat markets. While HET had expressed interest in building or buying discrete property on the Strip, the purchase allows HET to immediately take advantage of currently strong Las Vegas fundamentals in a more meaningful way. CZR's Las Vegas portfolio should also allow HET to capture Total Rewards members who are bypassing Harrah's current offerings in Las Vegas in favor of alternative properties. Caesars' four prominent Strip properties include Caesars, Paris, Bally's, and Flamingo, which are situated at one of the busiest intersections at the center of the Strip. In addition, HET should be able to improve same store sales and efficiency at CZR properties by implementing its industry-leading player tracking systems and loyalty programs. Returns on CZR's heavy capital investment program over the past several years have been disappointing and the upside exists in better asset utilization.

HET financed the cash portion of the CZR acquisition ($1.9 billion) with borrowings under its revolving credit facility, increasing pro forma leverage to 4.3 times (x) at closing. Fitch expects Harrah's to end 2005 with pro forma leverage of approximately 4.2x, versus actual 2004 leverage of 4.3x (which includes just six months of Horseshoe results). Heavy capital expenditure plans in the range of $1.5 billion should preclude significant debt reduction in 2005. However, an anticipated drop-off in spending in 2006 and a full-year of CZR results should produce ample free cash flow for the company to delever to levels appropriate for the rating (below 4.0x) by the end of 2006. While closing leverage is high for the rating category, Fitch notes that this is consistent with Harrah's historical capital structure policies with rapid improvement in leverage following acquisition-related debt increases. With revolver capacity upsized to $4 billion at closing, liquidity remains solid, with roughly $2 billion remaining in available funds. Based on current projections, cash from operations combined with revolver availability and cash-on-hand appear adequate to support the company's growth initiatives, meet debt maturities, and pay dividends through at least year-end 2006.

Ratings reflect the company's large and diversified portfolio of casinos, significant cash flow generation, nationally recognized brands, good quality assets, geographic diversity, marketing/technical prowess, and financially conservative management team. Harrah's achieves strong same-store growth through its industry-leading Total Rewards loyalty program and capital investment in existing properties. Strong external growth has been achieved largely through strategic acquisitions, with numerous large-scale acquisitions successfully closed and integrated into the portfolio over the past five years, including Showboat, Inc. ($1 billion), Rio Hotel & Casino ($987 million), Players International ($439 million), Harvey's Casino Resorts ($712 million), and Horseshoe Gaming ($1.6 billion). Ongoing risks include the potential for further run-up in leverage due to future acquisitions or development opportunities, potential regulatory changes and/or tax increases (particularly in riverboat jurisdictions), and competitive threats to Illinois, Atlantic City, and northern Nevada. As Harrah's largest acquisition to date, integration risks remain a key concern.

The Stable Rating Outlook reflects Fitch's expectation that Harrah's will improve credit metrics to levels more appropriate for the credit within 18 months of closing. The rating(s) and Outlook would be adversely affected if HET is unable to reduce debt in a timely manner or chooses to pursue additional large-scale debt-financed acquisitions, growth projects, and/or share repurchases.

Fitch's rating definitions are available on the agency's public web site, 'www.fitchratings.com'. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.