Published Thursday, March 19, 2009 | 9:20 a.m.
Updated Thursday, March 19, 2009 | 10:21 a.m.
Sun archives
- Harrah’s expects annual savings of $500 million (3-17-09)
- Harrah’s reports loss, says LV properties hit hard (3-13-09)
- Harrah’s announces plan to reduce debt burden (3-4-09)
- Strip building boom, buyouts were ill-timed, and many see more pain in ’09 (3-1-09)
- Harrah’s wants class-action suit over debt swap dismissed (2-27-09)
- Harrah's hit with class-action lawsuit over debt plan (2-16-09)
- Harrah’s seeking $740 million from credit line (2-13-09)
- Harrah’s makes cost-cutting moves (2-12-09)
Harrah's Entertainment Inc. today said the companies that took it private and now own it are increasing their investment in the gaming company by offering to buy up to $350 million of Harrah's outstanding debt.
Harrah's disclosed today that these firms -- Hamlet Tender LLC, Hamlet FW LLC; affiliates of Apollo Global Management LLC, TPG Capital L.P.; and other unnamed co-investors -- have boosted their cash tender offer for a series of Harrah's notes to $350 million from $250 million. Apollo and TPG are the companies that in January 2008 took Harrah's private for $30.7 billion, a deal in which Harrah's took on nearly $24 billion in debt.
The move by the owners of Harrah's, sources have said, is aimed at keeping them in control of the company should it file for bankruptcy protection because of the recession and challenges Harrah's may have in servicing its massive debt load.
The disclosure came today as Harrah's said the holders of about $5 billion in Harrah's corporate debt -- 57 percent of the eligible debt -- had agreed to exchange their notes for new notes with an extended maturity date and a higher interest rate. This debt is separate from the $350 million that Apollo, TPG and the other investor/owners are offering to buy.
The debt holders have until April 1 to agree to the Harrah's corporate debt exchange offer. Since Harrah's debt is trading at a substantial discount to face value, Harrah's is likely to buy even more debt than the $5 billion already tendered and replace it with the new notes totaling $2.8 billion.
Today's announcement didn't appear to change the fundamental challenge facing Harrah's: too little cash flow to service its debt, meaning the company must continue to find a way to reduce its debt burden either in or out of bankruptcy court.
"I believe they'll need to be restructured,'' said Andrew Zarnett, a securities analyst at Deutsche Bank.
In addition to the debt-exchange deal, Harrah's has been working to cut costs and this week projected savings will reach an annual rate of $500 million.
But in a note on Harrah's fourth quarter earnings, Zarnett said the cuts may backfire by eroding customer service levels and allowing infrastructure to decline at Harrah's properties.
"This could have the unfortunate repercussion of alienating customers, forcing them to seek play at competitors,'' he wrote. "In a commodity-type business, we believe customers will be sensitive to comps, service and the physical plant and walk with their wallets to competitors, leading to market share losses and lower EBITDA (cash flow),'' he wrote.
The brands for the world's largest gaming company in Las Vegas include Caesars Palace, the Rio, the Flamingo Las Vegas, Bally's and Paris Las Vegas.
Harrah's last week reported fourth quarter revenue of $2.28 billion, down 13.3 percent from the 2007 quarter; and cash flow of $478 million, down from $622.8 million.
Steve Green can be reached at 990-7714 or [email protected].
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