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Arnold M. Knightly

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Harrah's move might preclude bankruptcy

17 Feb 2009

By Arnold M. Knightly

LAS VEGAS, Nevada -- Harrah's Entertainment's recent moves, including a request to draw down the $740 million remaining on its $2 billion credit line, could point the company toward a financial restructuring, a local finance professor said.

The casino giant is asking lenders to tap the money "in light of the continuing uncertainty in the credit market and general economic conditions ... for general corporate purposes, including capital expenditures," according to a late Friday filing with the Securities and Exchange Commission.

Michael Sullivan, a University of Nevada, Las Vegas finance professor, said the company could be hoarding cash for operations or to pay covenants on current borrowing. Or, it could be looking to file a bankruptcy plan.

"Harrah's is going through a lot of the same financial problems as its competitors," said Sullivan, pointing to similar moves by Station Casinos. "There is an obvious need for cash in this environment."

Station Casinos announced in late December it was tapping the rest of its credit line, a decision analysts said could be a precursor to a bankruptcy filing. Six weeks later, on Feb. 3, Station Casinos announced a prepackaged plan that would take the company into a Chapter 11 bankruptcy this March.

Bond and gaming analysts have yet to react to the Harrah's announcement, which was made after 5 p.m. before a three-day holiday weekend.

Harrah's representatives declined to comment on Monday.

Harrah's, which will report its annual results March 13, posted a net loss of $415 .1 million from Jan. 1, 2008, through Sept. 30, 2008, filings with the Securities and Exchange Commission show.

The company posted a revenue decline of 6.8 percent in the third quarter and a 4.3 percent drop the first nine months of last year as the mortgage meltdown hit the gaming giant's customer base.

In January, Moody's Investment Services said the capital structure for Harrah's "appears unsustainable unless gaming demand rebounds significantly."

The company was able to successfully reduce its $24.1 billion debt load by $1.16 billion through a debt exchange completed in January.

Harrah's doubled its debt load when it was taken private for $90 per share in January by private equity firms Apollo Management and TPG Capital.

Harrah's told employees last week it would cut managers' pay and suspend employees' 401(k) contributions during the economic downturn. Harrah's contributed $33.1 million to the 401(k) plan in 2007, federal filings show.

The payroll reductions and 401(k) suspension follow a year of layoffs throughout the company, including nearly 1,600 in Las Vegas and the November closing of Harrah's office in Memphis, Tenn., that cut 250 jobs.

The company employed 87,000 workers in 2007 but has not updated the number since February 2008.

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