Updated from 3:14 p.m. EST

The Isle has it.

Shares of Isle of Capri Casinos ( ISLE), a casino operator specializing in riverboat gaming, rose 13.8% on Tuesday after the company announced that it beat out Harrah's Entertainment ( HET) for the tenth gaming license in Illinois.

But the company's winning $518 million bid comes at the cost of its credit rating. After the bell on Tuesday, Standard & Poor's revised the company's long-term debt rating to negative from stable while reaffirming its long-term corporate credit rating of BB-minus, which is the third-highest junk rating.

"The ratings reflect Isle's aggressive growth strategy, the second-tier market position of many of its properties, and increased expansion capital spending," said Standard & Poor's credit analyst Peggy Hwan.

Isle said it will open a 40,000-square foot casino on a nine acre spread in Rosemont, Ill., near Chicago's O'Hare International Airport by the end of the year. The accelerated construction timeline -- as well as the gaming license -- are the result of the bankruptcy of Emerald Casino, which had already built a parking garage and much of the infrastructure on the Rosemont property before filing for bankruptcy.

In addition to the amount already spent, Isle said it would spend another $150 million to complete the work on the Rosemont property, which will include four restaurants and nearly 20,000 square feet of entertainment and retail space. In accordance with state law, Isle said it would own 80% of the Rosemont property, with minority partners taking the remaining 20%.

"We believe that our proposal offers the best project in the best location and the Illinois Gaming Board's decision supports that view," said Bernard Goldstein, chairman and CEO of Isle.

Days ago, most observers were convinced that Harrah's $520 million bid would trump Isle's $518 million bid for the gaming license. On Mar. 5, the IGB named Harrah's the leading bidder, but savvy maneuvering from Isle management over the last week may have helped it steal the license.

In reaction to the surprise, shares of Isle rose $3.19 to $26.37, while shares of Harrah's rose 72 cents, or 1.4%, to $52.28.

While Isle's bid still must be approved by the U.S. Bankruptcy Court handling the Emerald matter, analysts say that the company won over the IGB with more than just money. Just after Harrah's was announced the front-runner, Isle management reached a $45 million settlement with the creditor who built a parking garage on the Rosemont property and included that in its bid, not only cleaning up, but building over the mess that Emerald left when it went under.

"We believe the IGB also considered the potential for further litigation if it did not select the Rosemont location," said Marc Falcone, analyst at Deutsche Bank Securities. "We also believe the shorter construction timeline played a role in the Board's decision, as did Isle's revenue sharing commitment to distribute approximately $17 million annually to over 71 communities in Cook County."

When it opens, the Rosemont project won't have much of an impact on 2004 earnings, but it will be accretive to 2005 earnings, according to revised analyst estimates. CIBC World Markets analyst William Schmitt told investors the property would generate between $326.6 million and $408.3 million in revenue, with an EBITDA boost between $89.7 million and $112.1 million.

In a best-case scenario, Schmitt said that Isle could make $2.08 a share in 2005, with a middle-case scenario of $1.91 a share and a worst-case scenario of $1.73 a share. According to Thomson One Analytics, analysts expect the company to make $1.90 a share in 2005.

"The Illinois license could be a significant positive for Isle. Our view is that the company has demonstrated it is a solid operator and has succeeded in competitive markets," said Schmitt. "We believe that the further expansion of the Isle brand and the increased geographic diversification would be additive on a relatively short-term horizon."

And what's good for Isle may be bad for rivals. With a non-bankrupt operator holding the tenth gaming license, holders of the other nine licenses will face increased competition. J.P. Morgan research estimates that Mandalay Resort's ( MBG) joint-venture casino in Elgin and Penn National Gaming's ( PENN) casino in Aurora could see revenue drop between 10% and 15%.

But while the debut of Isle's casino in Rosemont may depress results for some, Illinois will be rolling back taxes on casino winnings from 70% to 50% once it opens. And there's some good news for Harrah's investors, too, who may have dodged a bullet by losing out with its $520 million bid for a license.

"While the Chicago market is deep, as mentioned, the price tag had gotten too high for our liking and we were concerned about a dilution to return on investment for Harrah's," said Eric Hausler, gaming analyst at Susquehanna Financial Group, noting that taxes are still quite onerous at 50%. "Additionally, Illinois has done nothing in recent history to ensure operators that paying through the teeth for a license is money well spent."