Analyst questions Harrah's motives for regulatory filing

16 August 2010

LAS VEGAS, Nevada -- A regulatory filing by Harrah's Entertainment to publicly list a billionaire investor's 9.9 percent stake in the company could test the waters for the privately-held casino operator's own initial public offering.

KDP Investment Advisors bond analyst Barbara Cappaert told clients Harrah's won't receive any financial proceeds from the listing for New York-based hedge fund Paulson & Co., which acquired an interest in Harrah's in exchange for $710 million in debt.

The S-1 filing with the Securities and Exchange Commission late Thursday was first thought to be a much-rumored initial public offering by Harrah's, which was taken private two years ago in a $29 billion private equity buyout.

"So what does this mean for Harrah's?" Cappaert wrote. "It certainly tests the market as to what Harrah's is worth but it is curious that the company does not think an all out IPO for company raised shares can be done."

The analyst said the moves "bears watching" and she speculates that Harrah's majority owners, Apollo Management and TPG Capital, may follow through and put some of their holdings on the market.

"Are they concerned about Harrah's prospects down the road later and are willing to cash out now?" Cappaert said. "It certainly would appear to be the case."

Harrah's operates the Harrah's, Caesars and Horseshoe casino brands, the World Series of Poker and an online gaming business in the United Kingdom. The company has nine casinos along the Strip, including the Rio.

Harrah's also has more than $19 billion in long-term debt and the company has taken measures to lower its debt load and interest expenses.

Cappaert isn't sold on the Paulson move.

"This is not enough to have us upgrade our ranking on Harrah's, particularly after the poor second quarter the company just reported," Cappaert said. "Instead, its just another headline that appears promising but in fact does nothing to deliver an already overleveraged gaming company."

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