Informe completo de Moody's sobre la rebaja en la calificación de Cirsa

Madrid, June 21, 2012 -- Moody's Investors Service has today changed to negative from positive the outlook on the ratings of Cirsa Gaming Corporation S.A. (Cirsa) and related rated entities. Concurrently, Moody's has affirmed the following ratings of Cirsa: the B2 corporate family rating (CFR) and probability-of-default rating (PDR); and the B3 rating on the EUR680 million worth of 8.75% senior notes due 2018, issued by Cirsa Funding Luxembourg S.A.

RATINGS RATIONALE

"The change in outlook to negative from positive reflects the increased business risk affecting Cirsa's operations in Argentina and Spain, which may impact the company's future operating performance despite its strong track record in achieving profitability targets," says Iván Palacios, a Moody's Vice President -- Senior Analyst and lead analyst for Cirsa.

In Moody's view, the operating environment in Argentina, a country where Cirsa generated 22% of its consolidated EBITDA in 2011, is becoming more challenging and unpredictable. This is as a result of the country's slowing GDP growth and the government's unexpected policy decisions, which have led to events such as the nationalisation of YPF, the oil and gas company, and the implementation of foreign exchange-controls. Starting in 2011 and continuing this year, the Argentinean government has tightened foreign-exchange controls and limited company dividends across the board in a bid to stem capital flight.

Cirsa is geographically diversified and does not rely significantly on the cash flows from its Argentinean subsidiaries, as these cash flows are currently being used to service debt or make further investments at the local level. However, Moody's notes that sustained restrictions on capital flows might weaken Cirsa's liquidity profile over the medium term.

An additional element that Moody's has considered in its decision to change the outlook on the rating to negative is the recent downgrade of Spain's government bonds rating to Baa3, on review for downgrade. The Spanish business is Cirsa's largest EBITDA contributor, representing around 24% of the group's consolidated EBITDA. The sovereign downgrade is a credit-negative development for Cirsa in light of the multiple channels of contagion that exist between sovereign and corporate issuers domiciled in that country. These channels of contagion include contracting economic activity in light of the government's austerity measures, and liquidity constraints and higher financing costs resulting from diminished investor confidence and credit availability.

Cirsa's operating performance remains solid, as reflected by 11% EBITDA growth in 2011 to EUR290 million. Management expects this trend to continue in 2012, and has provided guidance of 8%-11% EBITDA growth to around EUR310-320 million. This growth will be primarily supported by the casino division and the full roll-out of Video Lottery Terminals (VLTs) in Italy. As a result of EBITDA growth, the group has managed to reduce leverage (as adjusted by Moody's) from 5.5x in 2007 to 4.1x as of March 2012 on a last-12-months basis. Nevertheless, Moody's notes that achieving these EBITDA growth targets may be more challenging going forward in light of the increased operating risks in Cirsa's key markets.

Cirsa's B2 rating reflects its position as one of the leading gaming operators in Spain, Italy and Latin America, its diversification in terms of business lines, gaming assets and geographies, combined with moderate leverage for the rating category and the group's exposure to emerging markets risk. The rating factors an increased contribution from Latin America to group earnings, as well as Cirsa's track record of successfully managing challenging operating environments. The B2 rating also reflects Moody's expectation that the group will maintain leverage levels (as adjusted by Moody's) in the 4.0x to 4.5x range.

The negative rating outlook on Cirsa's ratings reflects Moody's concerns about the operating environment in Argentina and Spain, which might adversely affect the group's business and potentially translate in deteriorating operating performance.

WHAT COULD MOVE THE RATING UP/DOWN

Upward pressure on Cirsa's ratings is unlikely given the negative outlook. However, Moody's could change the rating outlook back to stable if a strong operating performance were to enable the group to improve its credit metrics such that debt/EBITDA ratio (as adjusted by Moody's) trends to below 4.0x on a sustainable basis. However, upward pressure on the rating might be constrained until there are visible signs that the operating environment in Cirsa's key markets of Argentina and Spain has stabilised.

Conversely, downward pressure could be exerted on the rating if Cirsa's leverage were to increase above 4.5x on an adjusted basis whether as a result of a change in financial policy or a deterioration in operating performance. The rating could also come under pressure if Moody's were to consider Cirsa's liquidity to have become inadequate to support the group's operating performance or debt servicing. Downward pressure on Cirsa's ratings could also arise in the event that the Argentinean government were to pursue the nationalisation of gaming assets.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Cirsa Gaming Corporation S.A. and Cirsa Funding Luxembourg S.A. was the Global Gaming Industry Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Terrassa, Spain, Cirsa is a leading Spanish gaming company, with substantial operations in Italy and Latin America. As of December 2011, the group operated 65,500 gaming machines, 116 casinos, 79 bingo halls, 190 betting shops and 110 arcades. Cirsa reported net operating revenues of approximately EUR1.3 billion and EBITDA of EUR290 million in the year ended December 2011.

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