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Analyst: Harrah's bonds looking good

18 October 2006

NEW YORK, New York – As reported by Reuters: "Casino bonds may be an attractive bet now that the risk of holding them has retreated from a 17-month high in the wake of a buyout offer for Harrah's Entertainment Inc. (HET.N).

"Harrah's, the world's biggest gambling operator, received a $15 billion buyout offer from two private equity firms on October 2, spurring investment-grade bond investors to dump Harrah's 6.5 percent bond due 2016. The issue fell more than 10 cents to about 88 cents on the dollar, according to MarketAxess.

"'They've traded off quite considerably since the LBO offer and the relative risk-reward looks attractive,' said Joshua Greenwald of New York-based Scotia Capital, which has a 'buy' recommendation on the bond. "

"…After the LBO announcement, the yield gap between U.S. Treasuries and gaming bonds such as Harrah's and MGM Mirage (MGM.N:) climbed to its widest since May 17, 2005, when they were at 293 basis points, according to Merrill Lynch & Co. data. Wider spreads suggest greater risk.

"Standard & Poor's cut Harrah's ratings to junk on October 2, citing the LBO offer. Moody's Investors Service changed its outlook on Harrah's to 'negative' from 'stable.'…"

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