NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the ratings assigned to the Seminole Tribe of Florida (STOF) as follows:

--Issuer rating 'BBB-';

--Special obligation bonds, series 2007A & B, series 2008 A 'BBB-';

--Gaming division bonds, series 2005A & B 'BBB';

--Term loan facility, series 2007 B-1, B-2 & B-3 'BBB'.

The Rating Outlook is Stable.

Affirmation of the investment grade ratings is based on the success of STOF's gaming division in maintaining significant financial flexibility in the midst of a challenging operating environment. Recessionary economic conditions are pressuring consumers in Florida's regional gaming markets, and the introduction of commercial competition in southeast Florida has resulted in a more then doubling of slot supply in that market since 2006. STOF's transition to more profitable Class III gaming at its six properties throughout Florida, which began in early 2008, has provided a significant offset to these operating pressures. Contrary to the experience of many other regional gaming operations during this economic recession, STOF's gaming division has posted solid year-over-year growth in revenue and EBITDA in each of the quarters ended June 30, 2008 through Sept. 30, 2009.

Operational Headwinds for STOF's Gaming Division in 2010:

The Rating Outlook is Stable despite Fitch's belief that STOF's gaming division will face significant operational headwinds in 2010. The primary concern is the impact of the economic recession on the consumer in Florida's regional gaming markets, the effect of which was first exhibited in a soft operating trend beginning in STOF's fiscal 2007 and continuing into the first quarter of fiscal 2008, with the three southeast Florida properties the most impacted. Revenue growth rebounded beginning in the second quarter of fiscal 2008, and the positive trend persisted throughout fiscal 2009, due to the positive cash flow impact of the Class III transition. Since early 2008, STOF converted the slot product at all six properties to Class III from Class II, and introduced blackjack and baccarat at its Hollywood and Tampa Hard Rock branded properties as well as the Seminole Casino Immokalee property. However, Fitch expects the strong growth contributed by the Class III transition to slacken as the properties begin to anniversary the switch. This effect was evident in the June 30, 2009 and Sept. 30, 2009 quarter results, which, although continuing a positive trend, exhibited a decelerating rate of growth in revenue and EBITDA on a sequential basis.

STOF's gaming division exhibits a good amount of operational diversity, both geographically and within market segments. However, Florida's regional economies have been extremely hard hit by the economic recession. The state's economy is heavily services based, with employment concentrated in the financial services, construction and leisure and hospitality sectors. The confluence of an extremely severe collapse in the state's residential housing markets and weakness in tourism trends has heavily impacted the state's economy. Despite their location in popular tourist destination markets, all of the STOF properties, including its two Hard Rock branded locations, are heavily dependent on local market consumers. Fitch believes that the near-term outlook for the operating trend in Florida's regional gaming markets is poor on the basis of depressed local economic conditions. As other regions across the country exit the recession, recovery in many of Florida's regional economies will be forestalled by the continued drag of struggling residential housing markets and employment and income trends will likely take longer to return to their pre-recession peak.

Pressure from commercial competition in the southeast Florida market will increase in 2010 as pari-mutuels in Miami-Dade County add Class III slots, following the three locations in Broward County that did so in 2006-2007. In October 2009, Magic City Casino opened at Flagler Dog Track with 700 slots, and Calder Race Course (owned by Churchill Downs Inc.) is expected to open a 1,600 slot casino in the first quarter of 2010. Calder's location will pose a particular challenge given its proximity to STOF's Broward County properties; it is located near the Miami Dade/Broward County line, less than 10 miles from the Hollywood Hard Rock and Seminole Casino Hollywood locations.

Operational Pressures Offset by Strong Financial Profile:

STOF's gaming division has significant operational and balance sheet flexibility; it is well-positioned to weather the impacts of the above noted pressures on top-line revenue trends, supporting maintenance of the investment grade rating and Stable Rating Outlook. The credit's liquidity profile is strong. Near term uses of cash are minimal; debt maturities are modest until 2014, when the term loan matures, and there is presently no capital project development risk. Sources of liquidity include only cash flow of the gaming division and cash on the balance sheet as the credit does not maintain access to a committed source of external liquidity.

Risk related to lack of access to committed external liquidity is mitigated by the credit's very strong free cash flow profile. Even in an operational stress scenario developed by Fitch which assumes significant EBITDA declines in STOF's fiscal 2010 and 2011 before a leveling off in 2012, the gaming division would continue to generate a very significant amount of free cash flow relative to its moderate debt service carrying burden and the financial requirements of the tribal government, which are funded by the cash flow of the gaming division. As is typical for a Native American gaming entity, the bulk of the gaming division's free cash flow after meeting fixed expenses is transferred to the tribal government to support governmental services, capital projects and distributions to tribal members.

Credit metrics, including debt/EBITDA and EBITDA/debt service carrying charges, improved based on fiscal 2009 results which benefited from the continued transition to Class III gaming and the associated boost to cash flow, and are in-line with the investment grade rating level. Even assuming a flat to slightly declining EBITDA trend, debt leverage will continue to decline in the absence of additional debt capital raising activity, due to the level principal amortization structure of the credit's gaming division and special obligation bonds.

Uncertainty Regarding State Class III Gaming Compact, Future Capital Development Plans:

STOF converted to Class III gaming after a compact agreement was signed by Governor Crist in 2007 and which it has operated in accordance with the terms of since January 2008. The basis of the compact agreement is a revenue sharing fee paid by STOF to the state government in consideration of substantial exclusivity for Class III gaming relative to commercial gaming interests. Members of the Florida state legislature disputed the validity of the 2007 compact, and major uncertainties still exist regarding the eventual outcome of not only the terms of the STOF gaming compact, but also the potential for future expansion of the commercial gaming industry in the state. Members of the legislature appear to be deeply divided on these issues and the shape of the agreements eventually reached will have major implications for STOF's gaming division. At this point, there is a lack of clarity with respect to timing of the state government's decision process. Fitch expects that STOF will continue to operate under the terms of the 2007 compact until there is progress in the state legislature.

STOF's gaming division management has historically made prudent decisions with regard to major, debt-funded capital investments, and Fitch expects this to continue. The uncertainty related to the eventual terms of the state gaming compact has been a significant factor forestalling gaming division expansion, but the harsh gaming operating and capital markets environments have also played a role. However, assuming resolution of the gaming compact dispute, an economic recovery leading to a stabilization of operating trends, and improved investor sentiment on the Native American gaming sector, Fitch expects that STOF will at some point issue additional debt to expand its Florida operations. There is no clarity at the present time as to the eventual capital development plan. Should STOF's gaming division issue debt to fund development, there could be tolerance for increased debt leverage relative to cash flow in the context of the investment grade issuer rating during the project construction period, assuming it is occurring against a back drop of improved economic conditions and operating trends and clarity on the terms of the state gaming compact.

Potential Rating Drivers:

The Rating Outlook is Stable despite the challenging operating environment in Florida's regional gaming markets because of the significant credit strengths which Fitch expects to persist, supporting an investment grade rating. A downgrade of STOF's ratings or a Negative Outlook could result from some combination of the following events:

--Resolution of negotiations in the state legislature results in the potential for significant expansion of commercial gaming in the state.

--Regional economic conditions in Florida's gaming markets continue to worsen rather than beginning a slow recovery.

Transaction Ratings Affirmed at Current Levels:

Fitch has affirmed the transaction ratings on all outstanding debt, which includes the gaming revenue bonds, term loan and special obligation bonds. The one-notch distinction between the 'BBB-' transaction rating on the special obligation bonds and the 'BBB' transaction rating on the gaming revenue bonds and term loan reflects the special obligation bondholders' subordinated interest in the cash flows of the gaming division. Debt service on the special obligation bonds is payable from gaming division cash flows after debt service requirements on the gaming revenue bonds and term loan are met. STOF has entered into a distribution agreement with the trustee, pursuant to which it covenants that debt service on the special obligation bonds will be paid before the residual gaming revenues are used for any governmental purposes, including per capita payments to members.

Additional information is available at www.fitchratings.com.

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