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Arnold M. Knightly

Harrah's buying up Planet Hollywood's debt

15 September 2009

LAS VEGAS, Nevada -- Harrah's Entertainment is buying up the Planet Hollywood Resort's debt in what an analyst said could be a bid to take over the financially troubled Strip property.

Sources confirmed this weekend that Harrah's has bought a portion of the $860 million debt load that is leveraged against the property.

Officials from Harrah's and Planet Hollywood Resort declined to comment Monday.

Brian Gordon, a principal at Applied Analysis, however, suggested Harrah's could be following the recent trend of acquiring casino properties through debt purchases rather than through an outright buyout.

"With covenant and debt defaults looming around for some of these properties, it's a potential way to gain eventual ownership of a property," Gordon said.

The practice has been used successfully in the past locally, most recently when the Tropicana on the Strip was acquired in bankruptcy court.

In that case, the property's new owners bought nearly $440 million in debt at a steep discount.

At the same time, billionaire Carl Ichan led a group of investors who used a similar strategy to acquire controlling interest in Tropicana Entertainment, which owns gaming companies in Atlantic City, Laughlin, Lake Tahoe and in the Midwest.

Mike Sullivan, a finance professor at the University of Nevada, Las Vegas, said debt acquisitions usually happen when industries, such as the automobile industry or the airline industry, become distressed.

The troubled gaming industry, which has seen its visitor numbers and revenue dollars drop because of the recession, is perfect for this type of back-door takeovers because casinos are still cash machines if their debts can be erased, Sullivan said.

"(Harrah's) is buying a position on the cheap right now but with long-term ideas," Sullivan said. "They've got their foot in the door right now. ... They are picking up a position of influence, so they must be interested in acquiring assets."

But Sullivan called Harrah's purchases of Planet Hollywood's debt interesting, considering the gaming giant appears to be heavily leveraged itself.

Harrah's, which was taken private by private equity firms Apollo Management and TPG Capital before the economy collapsed, reported a $19.3 billion debt load for the second quarter ended June 30.

It is not known whether money being used for the purchases is coming from Harrah's or from one of the private equity funds.

The debt purchases appear tied to Planet Hollywood's defaulting on its debt.

Planet Hollywood officials on Friday got a letter from their lenders saying the company was in default because of "(Planet Hollywood's) failure to pay certain amounts of the debt that were due Sept. 9."

The Strip property, on the northeast corner of Las Vegas Boulevard and Harmon Avenue, warned in filings in August that it could default on the debt because of the current economic environment.

"Absent a capital contribution" from the property's owners or "an equity investment by third parties or a restructuring" of the debt, the owners "do not believe that cash generated from operations, cash held in reserve by the lenders under the loan agreement ... will be adequate to meet the anticipated working capital and debt service obligations" of Planet Hollywood Resort, the Aug. 14 Securities and Exchange Commission filing said.

Planet Hollywood Resort is owned by a partnership between restaurateur Robert Earl and private equity firm Bay Harbour Management. Starwood Hotels & Resorts Worldwide holds a minority share in the property and manages the hotel's food and beverage operations.

Earl and Bay Harbour acquired the old Aladdin out of bankruptcy from Aladdin Gaming on Sept. 1, 2004, for $510 million.

The property's long-term debt load swelled to $820 million in 2006 when the partnership borrowed money to remodel the property.

If Harrah's acquires the property, it would give the gaming giant 10 casino properties on and near the Strip and all 126 acres on the east side of the Strip between Flamingo Road and Harmon.

Harrah's buying up Planet Hollywood's debt is republished from