The sale is prompted by Pennsylvania's new slot machine legislation, which restricts ownership to 100% of a first licensed operation and no more than 33%-ownership in a second operation. Penn National owns Penn National Race Course in Grantville, PA and plans to develop a slot machine facility there, which is expected to open in early 2006. "While we would have preferred to have developed Pocono Downs ourselves, given the ownership restrictions on a second licensed slot operation in Pennsylvania, we concluded we had no alternative but to sell this property," says Peter M. Carlino, Penn National's CEO.

Pocono Downs is a standard harness racing track on 400 acres in Wilkes-Barre, PA. In addition to an initial 3,000 slots, the new MTGA facility will contain a buffet, steakhouse, food court, lounges, and a small entertainment venue. Completion is scheduled for early 2006. In addition to its $175-million construction investment, MTGA will pay the state a one-time $50-million license fee.

"The acquisition of Pocono Downs represents an important step in our long-term diversification strategy," says Mark F. Brown, MTGA chairman, adding that it is the Authority's first commercial gaming venture. Another major asset in the six-property purchase is the 28,000-sf Lehigh Valley off-track wagering operation in Allentown. It is the largest OTW in the state. MTGA's acquisition of the Penn National assets is expected to close prior to December 31, 2004.

To fund the purchase, MTGA will draw from its bank credit facility, which has been amended to increase current availability from $382.7 million to $600 million; increase the revolving commitment from $291 million to $450 million, and increase the term commitment from $97.1 million to $150 million. Banc of America Securities and Citicorp North America served as co-book managers of the amendment of the bank credit facility, and Bank of America is the administrative agent.

Penn National anticipates $175 million in net proceeds from the sale, after taxes, post-closing adjustments, fees and other expenses. It will use the proceeds for debt reduction. Bear Sterns & Co. was Penn National's advisor in the transaction, and SG Americas Securities was advisor to MTGA. Penn National continues to own and operate approximately eight casinos and resort properties and four racetracks in seven states in the US along with 11 off-track betting parlors in Pennsylvania, a casino in Toronto, and a 50%-interest in Freehold Raceway in New Jersey.