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Harrah's Reports a First Quarter Loss of $195 million, a 47.4%  Loss Increase from
Same Time Last Year: Debt Repayment, Revenue Declines Taking Toll on Operator

By Arnold M. Knightly, Las Vegas Review-JournalMcClatchy-Tribune Regional News

Apr. 28, 2010--Harrah's Entertainment saw its first-quarter losses increase as revenues continue to decline and the company pays large amounts on its debt.

Harrah's posted a first-quarter loss of $195.6 million, mostly due to the lingering impact of the recession on discretionary spending and continued debt payments, the company announced Tuesday.

Harrah's paid $491.5 million in interest expense on its debt load and $47.4 million on the early retirement of debt in the quarter ended March 31.

The loss was 47.4 percent more than the $132.7 million loss it posted at the same time last year.

Revenues slipped to $2.19 billion for the quarter ended March 31, a 14 percent decrease from the $2.54 billion posted in the first quarter of 2009.

Along with the drop in discretionary spending, the company also blamed downward pressure on room rates and severe winter weather in the Midwest and in the East for the revenue decline.

Property cash flow fell 12 percent to $493.7 million, down from the $561.3 million realized the same time last year.

Andrew Zarnett, who follows the hospitality's debt markets for Deutsche Bank, said in a note to investors that recent debt sales will continue to affect Harrah's cash flow.

The company recently issued $750 million in new debt due in 2018 to pay down some senior notes coming due in the next two years.

The problem is the new notes cancel or reduce the amount of securities maturing due through 2011 but leave the company paying higher interest rates. The 2018 notes are at an interest rate of 12.75 percent compared to the 5.5 percent to 8.125 percent interest on the old debt.

"While the capital raise does shift a bulk of (Harrah's) debt maturities beyond 2014, it also significantly increases the interest expense burden on the company and reduces free cash flow, which is a negative," Zarnett said.

Harrah's Chairman and Chief Executive Officer Gary Loveman said in a statement that delaying the debt maturity dates gives the company better near-term liquidity.

"Today, the company is positioned with substantial liquidity and minimal near-term debt maturities," Loveman said. "(Harrah's) is better poised to capitalize on an eventual economic rebound and long-term growth opportunities."

In Las Vegas, revenues from the company's acquisition of Planet Hollywood Resort in mid-February helped the company improve its revenues.

Revenues declined less than 1 percent to $682.8 million from $686.4 million last year. Property cash flow slipped 3.9 percent to $190.9 million in the quarter from $198.6 million.

Without Planet Hollywood Resort, however, revenues would have declined 4.4 percent. The company blamed increased room inventory in the market, weakness in group travel, lower average room rates and lower customer spending for the poor revenue.

The company owns nine hotel-casinos locally -- Caesars Palace, Planet Hollywood Resort, Rio, Harrah's, Paris Las Vegas, Bally's, Flamingo, Imperial Palace and Bill's.

Harrah's generates nearly 31 percent of its revenues in Las Vegas.

Barbara Cappaert, a bond analyst for KDP Investment Advisors, said in a note to investors that Harrah's results reflected "more of the same."

"No real significant progress on improving cash flows but an ease in near-term liquidity due to recent debt financings," Cappaert said. She added: "Harrah's is not going to grow out of its problems, in our opinion."

The company is privately held by private equity firms Apollo Management and TPG Capital.

Contact reporter Arnold M. Knightly at or 702-477-3893.


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