Harrah’s Management: ’Degenerate Gamblers’?

Harrah’s Entertainment, Inc., owner of the biggest casino network in Las Vegas and also the WSOP brand, has recently been relegated by Moody’s Investors Service.

Harrah’s is in private ownership, purchased two years ago by Apollo Management and TPG Capital for $27 billion. Now it is deep in debt but, according to Moody’s, “management seems more interested in jump-starting growth initiatives than in reducing debt.” They rather keep investing into new assets in hope of offsetting their deficit.

Moody’s calculated that “Harrah’s consolidated interest burden of nearly $1.7 billion consumes about 90% of property EBITDA” and concluded that basically only one sound option is left open: IPO. Theoretically, selling assets or restructuring the existing debt could also work, but the former opposes Harrah’s current policy of investing rather than amortize (see the recent acquisition of the Planet Hollywood Resort and Casino and the Thistledown racetrack), while the latter would endanger bondholder interests. Thus what remains is, as PeHub.com summarises, “an initial public offering, with a promise that proceeds will be used to pay down debt. That last part is critical, since public market investors are unlikely to sign on as spending spree facilitators.”

The only thing I believe is safe enough to invest in is a bet that Jack Ury would say: “You’re in trouble!”

You can see the Moody's report here or follow the 2+2 discussion here.