Fitch downgrades Harrah's

Fitch Ratings said it downgraded the debt ratings of Harrah's Entertainment Inc. and its principal operating subsidiary Harrah's Operating Co.

The ratings downgraded include Harrah's Entertainment's issuer default rating to BB+ from BBB- and Harrah's Operating's issuer default rating to BB+ from BBB-, bank credit facility to BB+ from BBB-, senior unsecured notes to BB+ from BBB- and subordinated notes to BB- from BB+.

Fitch also said it placed all of Harrah's ratings on rating watch negative.

The ratings reflect an announced proposal to purchase the company by private equity firms Apollo Management and Texas Pacific Group for $81 per share in cash, or a 22% premium to Friday's closing stock price. Harrah's has established a committee to review the proposal and the committee has not determined if it is in Harrah's best interest to continue as a public company or be taken private, Fitch said.

The agency said it believes the proposal would result in a substantial increase in leverage that is inconsistent with an investment-grade credit profile. Harrah's credit profile had already come under significant pressure, in Fitch's view, particularly in light of the increased leverage and reduced cash flow protection associated with the Caesar's Entertainment acquisition in 2005.

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