Harrah's extends oversubscribed exchange offers for 10 series of notes

By Angela McDaniels

Tacoma, Wash., Dec. 1 - Harrah's Entertainment, Inc. said its subsidiary, Harrah's Operating Co., Inc., extended its private offers to issue up to $2.1 billion of new 10% second-priority senior secured notes for 10 series of outstanding notes to 5 p.m. ET on Dec. 19 from Dec. 12.

The early tender date for notes with an acceptance priority level of 1 was extended to 5 p.m. ET on Dec. 5 from Nov. 28, according to a company news release.

Harrah's also lowered the acceptance cap for priority 2 notes to $500 million from $875 million. The maximum amount of toggle notes to be accepted remains $462 million.

The company said that roughly $4 billion, or 36%, of the old notes had been tendered as of 5 p.m. ET on Nov. 28.

The total amount of new notes issued in the exchange offers will not exceed the lesser of $2.1 billion and an amount that would result in the estimated cancellation of debt income, as determined immediately following the expiration date, attributable to the old notes tendered and accepted in the exchange offers to exceed $1.8 billion.

For each $1,000 principal amount of notes tendered and accepted, the amount of new notes to be issued will be:

• $1,000 for the company's $718 million 5½% senior notes due 2010 and $363 million 7 7/8% senior subordinated notes due 2010;

• $800 for the $72 million 8% senior notes due 2011 and Park Place Entertainment Corp.'s $328 million 8 1/8% senior subordinated notes due 2011;

• $500 for the $500 million 5 3/8% senior notes due 2013;

• $400 million for the $1 billion 5 5/8% senior notes due 2015, $750 million 6½% senior notes due 2016 and $750 million 5¾% senior notes due 2017;

• $572.50 for the $1.4 billion 10¾%/11½% senior toggle notes due 2018; and

• $700 for the $4.93 billion 10¾% senior notes due 2016.

In each case, the payout includes $30 principal amount of new notes for notes tendered by the early tender date.

Notes tendered after that time but before the final expiration date will receive the same payout minus the $30 early participation consideration.

The company will also pay accrued interest up to but excluding the settlement date, and the new notes will accrue interest from and including the settlement date.

Accrued pay-in-kind interest on the toggle notes will not be included in determining the principal amount of toggle notes tendered in the exchange offers, but an estimate of the accrued interest through the settlement date has been included in the payment being offered for the toggle notes.

The new notes issued in exchange for notes due 2010 to 2013 will mature in 2015, and the new notes issued in exchange for notes due 2015 to 2018 will mature in 2018, according to a previous company news release.

Old notes tendered will be accepted in order of their acceptance priority levels. The notes due 2010 through 2013 have are acceptance level 1, the notes due 2015 and 2016 are acceptance level 2, the toggle notes are acceptance level 3, and the 10¾% notes due 2016 are acceptance level 4.

The exchange offers began Nov. 17 and are not conditioned on a minimum principal amount of notes being tendered or issued.

Dutch auction

As of Nov. 28, holders of $286 million, or 19%, of the old notes maturing in 2010 and 2011 had elected to receive cash instead of new notes under a modified Dutch auction.

As previously reported, auction participants must specify the minimum amount of cash they will accept in lieu of the new notes. This offer price must be at least $670 and no greater than $770 per $1,000 principal amount of new notes that the holder would have received under the exchange offers.

Harrah's will accept submissions in the order of lowest to highest offer prices within the price range and will select the single lowest price that will allow it to pay the maximum auction amount.

The maximum amount of cash to be paid in the auction is $325 million.

The company emphasized that because (a) the offer price being specified is per $1,000 principal amount of new notes the holder would have received under the exchange offers and (b) the exchange rate for some 2010/2011 notes is less than par-for-par, the amount of cash that auction participants are asking to receive would be lower if re-expressed for each $1,000 principal amount of the notes being tendered.

And because the amount of cash to be paid is based on the amount of new notes holders would have received under the exchange offers, auction participants who tender after the early tender date will receive a lesser amount than those who tender before.

New notes

The new notes will be guaranteed by Harrah's Entertainment and will be secured on a second-priority basis by substantially all of the assets of Harrah's Operating and the assets of Harrah's Operating's wholly owned domestic subsidiaries that have pledged their assets to secure Harrah's Operating's senior secured credit facilities.

The new notes will not, however, be secured by liens on the capital stock of Harrah's Operating or any of its subsidiaries, the release noted.

The new notes due 2015 will be callable at par through Dec. 15, 2012 and then at 105. The call price will step down to 102.5 in December 2013 and then to par in December 2014.

The new notes due 2018 will be callable at par through Dec. 15, 2013 and then at 105. The call price will step down each year, reaching par in December 2016.

The company said the purpose of the exchange offers is to reduce the outstanding amount of debt at Harrah's Operating and to extend the weighted average maturity of the subsidiary's outstanding debt.

The exchange offers are being made only to qualified institutional buyers and to some non-U.S. investors located outside the United States.

Citigroup Global Markets Inc. and Banc of America Securities LLC are the dealer mangers, and Global Bondholder Services Corp. (866 736-2200 or 212 925-1630) is the information agent for the offers.

Harrah's Entertainment is a Las Vegas-based casino company.

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