DBRS Conf Great Canadian Gaming Corp at BBB, Removes UR-Neg

Dominion Bond Rating Service (“DBRS”) has today confirmed the rating of Great Canadian Gaming Corporation’s (“Great Canadian” or the “Company”) Senior Secured Debentures at BBB, with a Stable trend. The rating has been removed from “Under Review with Negative implications” where it was placed on May 18, 2005.

The confirmation reflects the following: (1) Although the pace of recent acquisitions exceeded DBRS’s expectations, DBRS expects the Company to raise a reasonable amount of equity in the near future, which would offset a portion of the debt incurred from the acquisitions of Georgian Downs (Ontario) and Metropolitan Entertainment Group (Nova Scotia), and a possible future near-term acquisition. Sizeable future acquisitions remain a concern, but management intends to use reasonable equity financing for any acquisition, helping mitigate the impact on the financial risk profile; (2) Acquisitions are increasing integration risks, especially given the Company’s broader geographic presence. The Company has expanded its senior management team and formed a new integration team to address this concern (and is in the process of opening a new regional office in Toronto). The confirmation assumes that these changes will result in successful integration of recent and expected acquisitions; (3) The acquired facilities should comfortably add incremental EBITDA of over 15%, based on historical performance, and cash flow should also improve from significantly higher annual reimbursements from provincial gaming commissions (hereafter referred to as “FDIF”), a full year of operations from the Orangeville assets, and expansions at two British Columbia (“B.C.”) facilities. As a result, debt levels should remain manageable relative to higher cash flow and FDIF received levels (actual and projected cash flow from operations and FDIF received-to-total debt both expected to be at 0.26 times), following the equity issue.

Great Canadian maintains a stable earnings profile, based on its strong position in the B.C. market and high barriers to entry in the industry (which is highly regulated). Although competitors in the B.C. market have been upgrading facilities over the past year, the Company’s operating metrics have been steady as its key facilities are modern and well-located, and the B.C. gaming industry remains underserved relative to the rest of the Canadian market. Earnings growth in the B.C. market should continue to be strong in the near term due to the Company’s ongoing capital initiatives in Coquitlam and Hastings (the bulk of which are expected to be completed by the end of 2005).

However, while recent acquisitions have improved diversification, earnings remain concentrated in the B.C. market (75%-80% of projected EBITDA). Regulatory changes in B.C. could significantly impact future cash flow and profitability. In addition, the Company is growth-oriented, and future acquisitions and capital projects could cause debt levels to rise and raise integration risks going forward. Should future acquisitions not be sufficiently funded with equity, and debt levels rise beyond current expectations, the rating could be impacted.