Harrah's may need more relief

LAS VEGAS, Nevada -- Harrah's Entertainment will need to negotiate further debt relief if it hopes to avoid bankruptcy, bond analysts said Monday after examining results of the company's latest debt swap program.

The company's debt swap offer, which expired last week, cut Harrah's debt by nearly $2.3 billion, but Wachovia Capital Markets analyst Dennis Farrell Jr. said that may not be enough to keep the company from falling out of compliance with some of its loan covenants, possibly by the end of the year.

"(Harrah's) management and sponsors have likely bought the company more time with this exchange," Farrell said in an investors note. "(Harrah's) will likely strike a deal with their 2010 and 2011 noteholders to provide even more runway for the company."

Chris Snow, a bond analyst with CreditSights, said the latest debt swap should ease some of the company's near-term liquidity issues, but "covenant compliance will become a substantive issue by the middle of 2010."

Snow said the debt swap cut Harrah's annual interest payments by nearly $70 million, although it only "partially solved" the company's long-term cash problems.

"The improvement to (Harrah's) balance sheet is palpable," Snow said in a Monday note to investors. "The company should now clearly get through 2010 without any liquidity problems. Beyond that, particularly in 2011, the company will face significant hurdles from its debt maturities."

Snow said the 64 percent response rate to the debt swap offer suggests investors are cautious about Harrah's ability to avoid having to file for bankruptcy to restructure its debts.