he Las Vegas company, owner of Caesars Palace and other well-known properties such as the Flamingo, Bally’s, Paris and the Rio, said it requested the final us$ 740 million "in light of the continuing uncertainty in the credit market and general economic conditions. The funds will be used for general corporate purposes, including capital expenditures.”
Chris Snow, an analyst at CreditSights, said the disclosure indicates Harrah’s needs to hoard cash in order to meet expenses and that it might be preparing for a prepackaged bankruptcy to reorganize its debt - much like Station Casinos Inc. drew down its credit line before announcing a plan aimed at reorganizing its debt through a prepackaged bankruptcy in which key lenders would agree in advance to concessions.
Harrah’s spokesman Gary Thompson declined to comment on the possibility of a debt reorganization, calling it speculation. Harrah’s, hit hard like the rest of the gaming industry by the recession, last fall reported having about us$ 24.1 billion in debt — a figure that ballooned in last year’s deal that took the company private. The current amount of debt has not been disclosed. The debt level changed after an exchange offer involving about us$ 2.1 billion in notes late last year.
For the quarter ending September 30, Harrah’s said it lost us$ 129.7 million vs. a profit a year earlier of us$ 244.4 million. Revenue fell from us$ 2.84 billion to us$ 2.65 billion - and if this trend of declining revenue continued through the final quarter of 2008 and through the current quarter, Harrah’s likely would face continued financial pressure to meet its debt obligations.
The company last week said it moved to cut costs by suspending matching contributions to employee retirement plans and cutting the salaries of managers eligible for bonuses. As previously disclosed, Harrah’s reiterated it will defer the completion of about 660 rooms in the Octavius Tower expansion at Caesars Palace because of the slow economy.
Other aspects of the project will proceed as planned, including the mid-summer opening of an additional 10,219 sqm of meeting and convention space, three 929 sqm villas and an expanded pool and garden area. The cost of the project, not counting the deferred rooms, is about us$ 681 million.