aulson won the right to be the first equity holder to register and may publicly sell his stock as part of his hedge fund’s us$ 710 million swap of debt for equity with Las Vegas-based Harrah’s, according to the June 3 investment agreement. Once approved by regulators, Paulson’s 9.9 % stake will be registered on the New York Stock Exchange or Nasdaq Stock Market “within a matter of months,” Harrah’s CEO Gary Loveman said in an interview.
Leon Black’s Apollo and TPG, run by David Bonderman, joined forces in January 2008 to buy Harrah’s in a us$ 30.7 billion deal - the biggest casino buyout- just as the gambling industry plunged into record declines. After trimming about us$ 4 billion of debt through discount deals with banks and exchanges with creditors, Harrah’s offered Paulson new equity in the company for his debt, with rights other shareholders don’t have.
“This puts Paulson in the driver’s seat” because his hedge fund, New York-based Paulson & Co., can push Harrah’s to register his shares faster than other investors may have preferred, said Steven Kaplan, a professor at the University of Chicago’s Booth School of Business.
The agreement with Paulson, who bought some debt at distressed levels, marks a shift in efforts to salvage the company from debt restructuring and cost-cutting to equity capital and growth.
“There are investors in this company that have written the equity to zero,” said Loveman, who is also Harrah’s chairman. “This transaction has been uniformly, positively received” because it reduces the debt load and is a “demonstration of confidence in the company’s future,” Loveman said.
Apollo and TPG, two of the world’s biggest private-equity firms, have helped reduce Harrah’s balance sheet over the past 19 months with deals that exchanged bonds for new discounted notes, paid down loans for a fraction of principal, amended lender agreements and extended key maturities through 2015. It also trimmed almost 21 % of the workforce and slashed spending to prevent declining revenue from decimating cash flow.
Paulson’s fund is the second-biggest shareholder in MGM Resorts International, after founder Kirk Kerkorian, and the fourth-largest owner of Boyd Gaming, investments he disclosed in May. As part of his bet on a US economic recovery, Paulson has also invested in Bank of America and Citigroup., two of the three largest US banks.
A spokesman for Paulson declined to comment on the firm’s plans for its Harrah’s investment. Apollo and TPG also declined to comment.
Harrah’s owners will decide “what other equity among the equity now in private hands” may also be registered along with Paulson’s, Loveman said. “Whatever that turns out to be, it would represent a very small minority of the total equity ownership of the company that would be traded publicly.”
Once casino and securities regulators have approved Paulson’s stake, “there’s a clock that starts that says from that point forward at some point there has to be a listing that allows him to exit if he wishes,” Loveman said, adding the period was “measured in months.”
Harrah’s, whose brands include the Caesars, Harrah’s and Horseshoe casinos, the World Series of Poker and London Clubs, was the first casino company listed on the New York Stock Exchange in 1973, two years after its public trading debut on the over-the-counter market. It went private in a deal that closed in 2008.