Harrah’s Swapping Out Bonds

Harrah’s Entertainment Inc. has agreed to swap a 15.6% equity stake for around $1.12 billion in outstanding bonds.

The participating creditors are Paulson & Co. (9.9% equity stake), Apollo Management and TPG Capital. Apollo and TPG are Harrah’s majority equity stockholders who acquired the bonds via secondary market purchases.

PRESS RELEASE

,Harrah’s Entertainment, Inc. (“Harrah’s”) announced today that it has entered into definitive agreements with certain affiliates of each of Apollo Management VI, L.P. and TPG Capital, L.P. (the “Sponsors”) and Paulson & Co. Inc., on behalf of investment funds and accounts managed by it (“Paulson”), to exchange $1,118 million face amount of debt at a specified exchange ratio for up to approximately 15.6% of the common equity of Harrah’s.  In addition, through this transaction, Harrah’s will raise $557 million of cash proceeds, which the Company intends to use for general corporate purposes, including further balance sheet optimization and strategic investments.  Upon closing of the transaction, Harrah’s will have approximately $3 billion in available liquidity, including $1.5 billion in cash on hand and amounts undrawn under Harrah’s revolving credit facility, and upon the closing of the previously announced amendments to Harrah’s CMBS loans, no significant debt maturities until 2015.  

Gary Loveman, Chairman of the Board, Chief Executive Officer and President of Harrah’s, said of the above transactions: “This is an important transaction for Harrah’s Entertainment for a number of strategic reasons.  We are raising capital for emerging domestic and international growth opportunities, and upon closing of the exchange, will reduce our debt and lower our interest expense.  The investment from Paulson, an independent third party and a large, sophisticated investor, reflects the strong and resilient performance of our company, particularly as we emerge from a difficult economic climate, and the encouraging prospects for our future. We also are gratified by the confidence in Harrah’s demonstrated by our sponsors, Apollo and TPG.”

The agreements specifically provide as follows:

  • As part of the transactions, Paulson and the Sponsors agreed to purchase approximately $835 million of 5.625% Senior Notes due 2015, 6.5% Senior Notes due 2016 and 5.75% Senior Notes due 2017 (collectively, “Notes”) in each case issued by Harrah’s Operating Company, Inc. (“Harrah’s Operating”), a subsidiary of Harrah’s, from another subsidiary of Harrah’s, Harrah’s BC, Inc. (“HBC”), for aggregate consideration of approximately $557 million.  Of this amount, Paulson will purchase approximately $532 million of Notes and the Sponsors will purchase approximately $303 million of Notes.
  • Paulson has agreed to exchange approximately $710 million of Notes in a private exchange for equity in Harrah’s (the “Exchange”).  
  • The Sponsors, who are the existing controlling stockholders of Harrah’s, have agreed to exchange approximately $408 million of Notes for Harrah’s equity on the same terms and conditions as Paulson in the Exchange.
  • Following receipt of required regulatory approvals and prior to the Exchange, Harrah’s will register Paulson’s shares of newly-authorized voting common stock with the Securities and Exchange Commission so that Paulson will receive registered voting common stock in the Exchange.  Voting common stock issuable to the Sponsors will not be registered.
  • No board seat or other governance rights will be afforded to Paulson in connection with this investment, and the Sponsors will continue to exercise control over Harrah’s following completion of these transactions.

 

Any Notes exchanged for equity in the Exchange will be held by HBC and will remain outstanding for purposes of Harrah’s Operating, which will continue to pay interest to HBC on such Notes.

Closing of the Exchange would be subject to certain conditions, including the receipt of required approvals from applicable gaming and other regulatory authorities, and there can be no assurance that such conditions will be satisfied.  It is anticipated that closing of the purchase and sale of additional Notes will occur promptly following the date hereof, with closing of the Exchange to occur during the fourth quarter of 2010 or the first quarter of 2011.  Harrah’s shall continue to evaluate further debt repurchases, for cash, stock, or debt consideration or any combination thereof, subject to market and various other conditions.  

The Harrah’s board of directors has received a written opinion from a nationally recognized investment banking firm as to the fairness, from a financial point of view and as of June 2, 2010, to Harrah’s of the specified exchange ratio provided for in the Exchange.  The opinion was provided solely for the use and benefit of the Harrah’s board of directors (solely in its capacity as such) in its evaluation of the exchange ratio from a financial point of view and was subject to various assumptions, qualifications and limitations on the review undertaken.  The opinion does not constitute a recommendation to any person with respect to any investment decision or otherwise.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offering, solicitation or sale would be unlawful.

About Harrah’s Entertainment

Harrah’s Entertainment, Inc. is the world’s largest provider of branded casino entertainment. Since its beginning in Reno, Nevada, more than 70 years ago, Harrah’s has grown through development of new properties, expansions and acquisitions, and now operates casinos on four continents. The company’s properties operate primarily under the Harrah’s®, Caesars® and Horseshoe® brand names; Harrah’s also owns the World Series of Poker® and a majority interest in the London Clubs International family of casinos. Harrah’s Entertainment is focused on building loyalty and value with its customers through a unique combination of great service, excellent products, unsurpassed distribution, operational excellence and technology leadership. Harrah’s is committed to environmental sustainability and energy conservation and recognizes the importance of being a responsible steward of the environment. For more information, please visit www.harrahs.com.