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Arnold M. Knightly

Harrah's Entertainment reduces debt by $1 billion

9 March 2010

LAS VEGAS, Nevada -- Less than a year ago, many industry observers were certain that Harrah's Entertainment would need to seek bankruptcy protection to restructure its heavy debt load.

Not anymore.

The world's largest casino company by revenue announced Monday it has amended terms with lenders controlling $5.5 billion in debt to extend maturity dates two years until 2015. The new agreement also reduced the loan debt from $6.5 billion to $5.5 billion.

The announcement is the latest maneuver by the company to reduce its debt from $23.1 billion as of Dec. 31, 2008, to $19.3 billion by the end of September through strategic debt swaps and discounted purchases.

Harrah's Chief Financial Officer Jonathan Halkyard said the agreement, which the company has been negotiating for a year with its lenders, gives the company more breathing room to survive the ongoing recession.

"People are really enthusiastic about (the agreement) because it was the closest, largest maturity," Halkyard said. "Now there's nothing for five years, basically."

Because of the agreement, Harrah's has only about $400 million in debt that will mature over the next two years.

The agreement also gives Harrah's the right to repurchase the debt, called commercial mortgage-backed securities or CMBS loans, at a discount. Harrah's has already agreed to purchase $124 million worth of the loans for $37 million.

Harrah's began chipping away at its CMBS debt load during the fourth quarter last year. The company said Monday it purchased nearly $950 million worth of the CMBS debt for $237 million late last year. The company will pay an additional $48 million for the loans as part of the agreement announced Monday.

Andrew Zarnett, who follows the hospitality industry's debt markets for Deutsche Bank, said the agreement provides Harrah's "with additional time and more financial flexibility to endure reduced business volumes across its regional and Las Vegas properties."

Harrah's posted a fourth-quarter profit of $298.3 million, but saw revenues decline 10 percent in the Las Vegas market. The local gaming market generates 30 percent of the company's business.

Zarnett said the agreement also will enable Harrah's to continue to pursue distressed assets, such as Planet Hollywood, which Harrah's just acquired through a debt purchase deal.

Halkyard said extending the maturity dates for the debt doesn't give the additional cash to do things such as finish the Octavius Tower at Caesars Palace. "The company would have been fine if we hadn't done this," Halkyard said. "But having done this gives us more time. There's nothing we're going to do tomorrow that we couldn't do yesterday."

Harrah's Entertainment reduces debt by $1 billion is republished from