New York-based Moody’s Investors Service reacted negatively today to Harrah’s Entertainment’s plans to offer a private exchange for some of the casino giant’s near-term debt, stating the casino company’s “credit metrics would remain weak” even if the exchange is successful.
Moody’s, an independent credit rating firm, downgraded nearly $16 billion worth of Harrah’s debt from B3, or highly speculative, to Caa1, which reflects a substantial risk of default for bond holders.
Moody’s credit analysts wrote in a note to investors that the downgrade reflects the firm’s view that “gaming demand will fall for a more prolonged period of time” than first believed “given deteriorating macro-economic conditions,” referring to the overall economic downturn gripping the world.
Moody’s had previously downgraded the company’s bond ratings.
Moody’s on Thursday also lowered Harrah’s probability of default rating from B3 to Ca, or extremely speculative.
The casino company said last Friday it hopes to issue $2.1 billion of 10 percent notes due 2015 and 2018, pushing current maturity dates back at least five years.
Harrah’s will also offer up to $325 million in cash for near-term maturities instead of notes.
The bonds involved in the offer are prioritized beginning with $2.1 billion worth of prebuyout notes maturing between 2010 and 2013, followed by $2.5 billion worth of notes maturing between 2015 and 2017. Notes maturing in 2016 and 2018 representing $6.8 billion worth of debt have lower priority.
The exchanges could be at rates as low as 63 percent below some of the current bonds’ face value, but “could result in a net reduction in debt and a lower total interest burden” for Harrah’s, according to Moody’s. Full participation in the exchange, however, would result in only a modest improvement in leverage and interest coverage.
Contact reporter Arnold M. Knightly at firstname.lastname@example.org or 702-477-3893.