gaming:

Harrah’s announces plan to reduce debt burden

Justin M. Bowen

Caesars Palace, on the left, is one of several Harrah’s-owned properties on the Las Vegas Strip.

By Liz Benston (contact)

Published Wednesday, March 4, 2009 | 4:29 p.m.

Updated Wednesday, March 4, 2009 | 7 p.m.

See the announcement from Harrah's

Headlines from the Vegas gaming industry

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Harrah’s wants class-action suit over debt swap dismissed (2-27-09)
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Harrah’s seeking $740 million from credit line (2-13-09)
Harrah’s makes cost-cutting moves (2-12-09)

Harrah's Entertainment on Wednesday announced a plan to exchange $2.8 billion in bonds for new notes with an extended due date – the latest in a series of efforts to lower the company's mounting debt burden.

If approved by bondholders, the offer is expected to buy the company more time as it navigates a recession that has pummeled earnings as debts come due.

The new, second priority notes carry a 10 percent interest rate, mature in 2018 and are secured by Harrah's assets.

Harrah's executed a similar debt swap in December, which reduced the company's debt by about $1 billion and postponed maturities by several years. In return for helping the company ride out the recession and fend off bankruptcy, bondholders received higher interest rates for their notes.

Thanks to recent stimulus legislation signed into law by President Barack Obama, companies now get to defer taxes on the forgiven debt, which was previously taxed as income.

Analysts expected Harrah's to initiate such offers this year to further trim debt. With banks reluctant to lend money in the downturn, Harrah's has few options but to negotiate with lenders and hope they are willing to gamble on the prospect of a distant rebound rather than foreclosing on casinos in a hasty grab for cash.

Earlier Wednesday, bond rating agency Moody's warned that Harrah's might not have enough cash to make debt payments this year, given the company's spending needs and some $700 million in bonds coming due over the next couple of years.

Moody's made a similarly downbeat forecast last week about Harrah's competitor MGM Mirage, which is also hurting for cash but for somewhat different reasons.

Harrah's spokesman Gary Thompson declined comment on bankruptcy concerns, saying such predictions were speculative.

Moody's on Wednesday downgraded several classes of Harrah's debt and lowered the company's credit ratings, citing a "high probability of default" as declining business in Las Vegas and Atlantic City chips away at the company's ability to make debt payments.

Moody's said Harrah's has just enough cash to cover interest payments. After payments and money the company is expected to need for operations, that leaves a negative cash balance this year and next, Moody's said.

Harrah's took on nearly $24 billion in debt when the company went private with backing from private equity firms Apollo Management and TPG in January 2008. The $30.7 billion leveraged buyout, one of the nation's largest during the credit boom, nearly doubled the company's debt at a time when the economy was slowing down.

The company's credit standing will likely remain weak even if Harrah's is able to exchange more of its notes and reduce debt, Moody's said.

Harrah's has trimmed costs by laying off workers, slashing benefits and suspending work on a hotel expansion at its Caesars Palace flagship.

The company's agreements with lenders, struck during the real estate boom with liberal terms, allowed for Harrah's to add the value of cost cuts – estimated at more than $400 million dollars – to its cash flow figures, inflating earnings figures reported to lenders and helping to keep the company out of default.

Discussion: 3 comments so far…

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By LemonSky

March 4, 2009

4:59 p.m.

Suggest removal

The CEO of Penn National must be sharpening his talons in anticipation of nabbing an inexpensive, yet scrumptious piece of Harrah's or MGM Mirage meat from the Strip.
By nightmare

March 5, 2009

8:19 a.m.

Suggest removal

Wow...maybe Harrah's shouldn't have purchased the Barbary Coast for some obscene amount of money and then sit on the land and do nothing with it.

Maybe Harrah's CEO Gary Loveman shouldn't have bragged about "spending money like a drunken sailor" when purchasing the Imperial Palace several years ago.

Though my favorite Loveman quote has to be his line about one must be a complete idiot to run a casino company into bankruptcy. Whoops, not such a bright thing to say after all. What does he care though? His take from the pillaging (formerly known as privatization) of Harrah's was allegedly in the neighborhood of $100 million, so no problems for him or anyone else in the upper circles of Harrah's.

This is all so depressing, I think I will cheer myself up by going to Harrah's and placing a bet on the Boston Celtics. Oops, I can't do that because Mr. Loveman took a small chunk of his Harrah's fortune and bought into the Celtics, thus preventing his company from being able to take bets on the team. So he put his personal interests ahead of the company's ability to make money.
By gqbossing

March 5, 2009

10:54 a.m.

Suggest removal

Harrahs traded the property where Westward Ho was for Barbary coast, they didn't buy it...

Imperial Palace is one of the best performing properties...

The root of this problem was greed. Greed by the higher ups, stock holders (many of them employees) and by the new private entities. Another problem was the SEC, who allowed the company to be taken private by mortgaging assets to give to shareholders.

This company would be just fine had they not taken on $12,000,000,000 in debt doing this, and/or the economy had not tanked.

The sad part is the owners only put in a small fraction of their own money to buy the company, like a 0 down home loan so they won't be completely against just walking away from this company.