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Alliance Ratings Raised

13 Jul 2004

LAS VEGAS – (PRESS RELEASE) -- Alliance Gaming Corp. (NYSE: AGI) announced today that Moody's Investors Service has raised the ratings of the Company in response to the completed sale of United Coin Machine Company (UCMC) to Century Gaming.

Moody's cited the consideration for the UCMC transaction of approximately $100 million in cash and the assumption by Century of approximately $5 million in debt. Moody's also considered "the company's improved financial profile and positive industry trends regarding the growth and development of gaming equipment and software products" as factors in the upgrade.

The following ratings were affected:

* $125 million senior secured revolving credit facility due 2008, to Ba3 from B1;

* $350 million senior secured term loan due 2009, to Ba3 from B1;

* Senior implied rating, to Ba3 from B1;

* Senior unsecured issuer rating, to B1 from B2; and

* Stable rating outlook

In a press release, Moody's said:

In November 2003, Moody's revised Alliance's rating outlook to positive from stable based on the company's announcement that it agreed to acquire 100% of the outstanding stock of Sierra Design Group, a supplier of Class II and Class III gaming devices, systems and technology. Other factors supporting the rating outlook revision at that time included other actions that the company had taken designed to improve the company's asset profile, reputation, growth prospects, operating margins, and free cash flow generating ability. These actions included the sale of Bally Wulff, a series of small, casino systems related acquisitions, and the company's announcement that it had agreed to sell United Coin.

As the second largest gaming equipment supplier in North America, Alliance directly benefits from increased demand from the legalization of new gaming jurisdictions and new gaming facilities, shorter product life cycles, and improvements in technology. These industry trends, along with the development and introduction of highly popular game titles and a relatively conservative financial policy, has resulted in sustainable credit metrics consistent with a Ba3 senior implied rating. Leverage, measured using debt/EBITDA, is currently about 3.3x while cash flow after interest, taxes, working capital, capital expenditures and other investing activities is about $26 million.

Also supporting the higher rating is the company's good liquidity profile. At March 31, 2004, Alliance had $55 million of availability under a $125 million revolving credit facility and cash of about $32 million. There are no material debt maturities until the company's revolving credit facility expires in 2008.

Alliance's Ba3 senior implied rating is limited by its relatively small size and narrow cash flow base. Additionally, while the company maintains a strong market position relative to other gaming equipment suppliers, International Game Technology, a much larger and financially stronger company, overwhelmingly dominates the industry. Alliance is also exposed to any slowdown in spending on slots and systems. While the overall market for gaming equipment will continue to grow, slower product approval and deployment in the New York Lottery market and Nevada gaming market, were partially responsible for the company revising its earning guidance downward for fiscal years 2004 and 2005. Over the next few years, Alliance, like other gaming equipment companies, remains susceptible to the uncertainty associated with the timing of new domestic and international gaming jurisdictions.

The stable rating outlook considers Alliance's established product line, increased focus on the higher margin gaming systems segment, and the relative stability of the gaming industry with respect to product demand. The stable rating outlook also anticipates that, despite the recent announcement of the appointment of a new Chief Executive Officer, Alliance will maintain a financial policy consistent with its Ba3 senior implied rating. Acquisitions to date have been small. Going forward, small to medium sized acquisitions could be accomplished at the Ba3 senior implied. However, any material change in senior management's operating and/or financial policy's that results in increased operating and/or financial risk could have a negative impact on the current rating.

 
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