S&P Upgrades Shingle Springs Tribal Outlook after State Compact Revision

Lakes Entertainment Inc. (LACO) is looking for a bigger chunk of the revenue a California Native American casino will generate. Under a new compact that has been approved by the governor and the tribe, leaders of the Shingle Springs Band of Miwok Indians have until Dec. 31, 2015 to restructure its payment obligations due and payable to Lakes Entertainment. As part of the agreement, payments to the state will be reduced.

 (The following statement was released by the rating agency)

Overview
     -- Shingle Springs Tribal Gaming Authority announced that the Shingle
Springs Tribe of Miwok Indians ("the Tribe") has agreed to an amended gaming
compact with the governor of California that would meaningfully reduce
operating expenses and outline a timeline for refinancing or restructuring of
the company's current obligations.
     -- We are affirming our 'CCC' credit rating on the Authority and revising
our rating outlook to developing from negative.
     -- The developing outlook reflects our view that there is potential
rating upside in the event the amended compact is approved, although downside
risk remains given the Authority's need to restructure its current capital
structure and address near-term legal challenges.
 
Rating Action
On Nov. 26, 2012, Standard & Poor's Ratings Services affirmed its 'CCC' credit
rating on El Dorado County, Calif.-based Shingle Springs Tribal Gaming
Authority ("the Authority"), and revised the rating outlook to developing from
negative.

Rationale
The revision of the outlook to developing reflects our view that there is
rating upside potential given the recent announcement that the Tribe has
agreed to an amended gaming compact with the governor of California, although
approval of the amended compact by both the California State Senate and
Assembly and the U.S. Department of the Interior is still required. The
developing outlook also reflects the downside risks associated with a
successful refinancing of current debt obligations under favorable terms and
the uncertainty about the final outcome of the Sharp Image Gaming case, which
could result in an event of default under the bond indenture in the near term.

The amended compact would reduce the amount of revenue contribution paid to
the state to 15% of net win from 20% to 25% of net win. In addition, from July
1, 2012, through June 30, 2015, the payment to the state would be placed into
a segregated trust fund available to fund tribal distributions, reduce
existing debt related to the payment and termination of the management
agreement with Lakes Entertainment Inc. and existing debt held by Lakes,
and/or reduce debt related to a refinancing of the existing senior notes due
2015.

In addition, the amended compact outlines specific timeframes for the
restructuring or refinancing of the Authority's obligations. We currently
anticipate that the Lakes debt obligation (approximately $67 million
outstanding as of September 2012) will be restructured at a discount.
According to Lakes Entertainment Inc.'s September 2012 quarterly filing, the
company has written down the obligation to approximately $37 million. Under
the terms of the amended compact, the Authority would have until Dec. 31,
2015, to enter into an agreement to restructure the Lakes payment obligation.
In addition, the amended compact states that a refinancing or restructuring of
the senior notes due June 2015 must occur no later than 48 months from the
effective date of the compact. We view the potential reduction in operating
costs over the intermediate term and timeline to restructure the Authority's
current obligations under the amended compact as important steps to facilitate
a successful refinancing of its obligations.

Our issuer credit rating on the Authority reflects our assessment of its
financial risk as "highly leveraged" and our assessment of its business risk
profile as "weak," according to our criteria. Our assessment of the
Authority's financial risk profile as highly leveraged reflects its weak
liquidity position, high debt leverage, and our expectation that it will have
difficulty generating sufficient cash flow to support its current capital
structure over the intermediate term. Our assessment of the Authority's
business risk profile as weak reflects the company's narrow business focus as
an operator of a single gaming facility, which operates in a competitive
market. The Tribe established the Authority to develop and operate the Red
Hawk Casino (near Sacramento, Calif.); it has approximately 2,250 slot
machines and 65 table games.

Through the first nine months of 2012, the Authority has outperformed our
previously published performance expectations. Through September 2012,
earnings before interest, taxes, depreciation, amortization, and management
fees (EBITDAM) grew in the high-teens percentage area. We had anticipated
EBITDAM to grow in the high-single-digit percentage area in 2012,
incorporating the strong, high-teens percentage area growth in the first half
of the year and an expectation for low-single-digit EBITDAM growth in the
second half of the year. The main driver of the EBITDAM increase in recent
months has been continued improvement in operating efficiencies. Absent the
potential reduction in operating expenses under the amended compact, we would
expect operating performance to improve in line with our economists' estimate
for low-single-digit growth in consumer spending and GDP in 2013.

Liquidity
We currently assess the Authority's liquidity profile as weak. It has limited
sources of liquidity, consisting only of modest excess cash balances and cash
generated from operations. There is no revolving credit facility in the
capital structure. We forecast that EBITDAM coverage of fixed charges to be in
the low-1x area at the end of 2012. While we believe excess cash on hand does
provide some cushion to meet its near-term obligations, we believe the
Authority's liquidity position will be pressured to meet is repayment
obligations in 2014, and it is unclear whether it will be able to access the
capital markets to refinance these obligations.

Additionally, our assessment of the Authority's liquidity profile as weak
reflects the ongoing case of Sharp Image Gaming Inc. v. Shingle Springs Band
of Miwok Indians. The trial has advanced; in December 2011, the jury awarded
Sharp Image Gaming Inc. $30.4 million. The Tribe appealed the judgment and
secured an order from the El Dorado County Superior Court relieving the Tribe
of any obligation to post a bond pending appeal. A final judgment in excess of
$10 million could result in an event of default under the bond indenture.

Outlook
The rating outlook is developing. While there is rating upside potential if
the amended compact is approved by both the California State Senate and the
U.S. Department of the Interior, the Authority's need to restructure its
current capital structure and its ongoing legal challenges associated with the
Sharp Image Gaming case (which could result in an event of default under the
bond indenture in the near term) represents downside risk. Because of these
risks, in the event of approval of the amended compact, ratings upside, if
any, would likely be limited to one or two notches, given the uncertainty
about the final outcome of the Sharp Image Gaming case and plans to address
the capital structure.

Related Criteria And Research
     -- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct.
1, 2012
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
     -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
 
Ratings List

Ratings Affirmed; Outlook Revision
                                      To                   From
Shingle Springs Tribal Gaming Authority
 Corporate Credit Rating              CCC/Developing/--    CCC/Negative/--
 Senior Secured                       CCC               

 (Caryn Trokie, New York Ratings Unit)