The analyzes aj burnett primary credit autographed baseball informs concern constraining SMEA's Issuer Rating to low investmentgrade is the business risk inherent in its single-site casino operation, whichis prone to event risk and is highly dependent upon a single market area in SanBernardino, a region that has been significantly affected by the currenteconomic downturn. Fitch believes the southern California gaming market willremain soft for the next 12 to 18 months, with recovery in this market likely tolag that of many other regional gaming markets nationwide. California's InlandEmpire region, including the San Bernardino area, has been extremely hard hit bycollapsing prices in an overbuilt local housing market. Fitch is currentlyforecasting California to lead the nation in home prices declines of another 36%from fourth quarter-2008 (4Q'08) levels before stabilization occurs.
As such,significant job losses precipitated by the housing market collapse, particularlyin the construction and financial services sectors, will continue to weigh ondiscretionary consumer spending in the Inland Empire region alex rodriguez . Despite the poor outlook for the forward operating trend in the regional gamingmarket, the Stable Rating Outlook reflects the strong financial profile of theSMEA credit autographed bats . While many other casino properties in the region began to exhibitweakening revenue trends in 2H'07, which persisted throughout 2008 and into1Q'09, SMEA posted relatively strong revenue growth in 2008 baseball simulation . The number of ClassIII slots in the facility increased by 75% in January 2008 per the terms ofSMEA's amended state gaming compact, driving revenue growth baseball tickets . In addition, thefacility benefited from its protected market area relative to the other casinosoperating in the region.
Revenues did drop slightly in 1Q'09 versus the prioryear period, as the property anniversaried the expansion in gaming positionspermitted by the compact amendments alex rodriguez bio . SMEA currently offers Class III gaming at its facility pursuant to a compactnegotiated with the state in 1999 and amended in 2008 autographed baseball . The compact negotiated in1999 allowed SMEA to operate up to 2,000 Class III machines; the 2008 amendmentsincreased the number of permitted machines to 7,500, with SMEA paying asignificantly higher amount in revenue sharing to the state autographed bats . To date, additionalslot revenues have not been sufficient to offset the incremental revenue sharingfees required by the compact amendment, resulting in some compression of theEBITDA margin . However, the liquidity profile of the credit remains very strong;the property generates significant free cash flow after debt service andmaintenance capital expenditures and prior to distributions to the tribalgovernment. There are no significant debt maturities, and no major projectsunder development.
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