Thursday, Sept. 24, 2009 | 9:09 a.m.
Harrah's Entertainment Inc. today said it expanded and adjusted its latest debt and liquidity initiative.
On Tuesday, the Las Vegas company announced subsidiary Harrah's Operating Co. planned to seek $750 million of new term loans to refinance or retire debt and to improve liquidity. Up to $175 million of the proceeds would have been used to buy back debt under four issues coming due in 2010 and 2011.
Harrah's today said the loan program was expanded to $1 billion and it reduced to $160 million the amount that will be used to buy back the existing notes. It didn't explain why the changes were made.
Andrew Zarnett, debt securities analyst at Deutsche Bank, said in a research note that the plan has pluses and minuses. Overall, he said, investors should remain concerned about Harrah's hefty debt load -- partly because of the potential for continued deterioration of the Las Vegas and Atlantic City markets.
The parent company, Harrah's Entertainment, reported it had $19.3 billion in long-term debt as of June 30.
"We believe that this capital raise creates liquidity to retire a portion of HOC's (Harrah's Operating Co.'s) near-term debt maturities and provides the company with more time to reassess its capital structure. On the flip side, contrary to the financial goal of risk reduction, this capital raise adds additional senior debt to the balance sheet, a definitive negative. Further, this offering also increases the interest expense burden of HOC. Given that backdrop, we view this capital raise event as a net negative to the overall HOC credit," his note said.
Analysts at CreditSights also expressed concern in a research note Wednesday.
"We remain cautious of Harrah's credit and operating risks -- as well as the outlook of the gaming sector in general," analysts Chris Snow and Frank Lee said in their research note. "The core gaming markets served by HET (Harrah's Entertainment) are still experiencing revenue declines of more than 10 percent year-over-year and we view operating conditions as the primary credit risk."
They also said Harrah's has been taking on new debt at double-digit rates -- rates up to 4 percentage points higher than debt it is refinancing -- which "constrains future cash flows over the long term."
"As we have discussed in MGM Mirage's recent capital-raising exercise, enterprise multiples in the gaming sector are not sustainable if companies continue to access capital at this high level of cost," they wrote.
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