| Fitch Rates Harrah's Sr Unsec Notes 'BBB-' |
Fitch Ratings has assigned a 'BBB-' rating to the proposed $1 billion senior unsecured offering from Harrah's Entertainment Inc. (NYSE:HET). The company has stated it intends to use the net proceeds from the add-on to the 5.625% senior unsecured notes due 2015 and the new senior unsecured notes due 2017 to refinance and extend the maturity of outstanding indebtedness. Harrah's Operating Company's 'BB+' senior subordinated rating and Stable Outlook remain unchanged.
The ratings reflect the company's large and diversified portfolio of casinos, significant cash flow generation, nationally recognized brands, good-quality assets, geographic diversity, marketing/technical prowess, and financially conservative management team. Harrah's achieves strong same-store growth through its industry-leading Total Rewards loyalty program and capital investment in existing properties.
Strong external growth has been achieved largely through strategic acquisitions, with numerous large-scale acquisitions successfully closed and integrated into the portfolio over the past five years, including Caesar's Entertainment ($9.4 billion), Showboat, Inc. ($1 billion), Rio Hotel & Casino ($987 million), Players International ($439 million), Harvey's Casino Resorts ($712 million), and Horseshoe Gaming ($1.6 billion). Ongoing risks include the potential for further run-up in leverage due to development opportunities, potential regulatory changes and/or tax increases (particularly in riverboat jurisdictions), and competitive threats to Illinois, Atlantic City, and northern Nevada. Integration risks with the Caesar properties also remain a key concern.
Fitch expects Harrah's to end 2005 with pro forma leverage of approximately 4.2 times (x), versus actual 2004 leverage of 4.3x (which includes just six months of Horseshoe results). Heavy capital expenditure plans in the range of $1.3 billion to $1.5 billion should preclude significant debt reduction in 2005. Additionally, the timing of debt reduction from free cash flow in the intermediate term is questionable due to the potential reconstruction expenditures of the company's Grand Casino Gulfport and Grand Casino Biloxi, both of which were significantly damaged by Hurricane Katrina. At this point there remains considerable uncertainty regarding the damage, likely insurance proceeds, and reconstruction schedule.
The Stable Rating Outlook reflects Fitch's expectation that Harrah's will improve credit metrics to levels more appropriate for the credit by the end of 2006. The rating(s) and Outlook would be adversely affected if Harrah's is unable to reduce debt in a timely manner or chooses to pursue additional large-scale debt-financed acquisitions, growth projects, and/or share repurchases.
Harrah's owns or manages through various subsidiaries more than 40 casinos in three countries with more than 3 million square feet of gaming space and approximately 40,000 hotel rooms. Its casino entertainment facilities, operating primarily under the Harrah's, Caesar's, and Horseshoe brand names, include 20 land based casinos, 14 riverboat or dockside casinos, a combination greyhound racetrack and casino, a combination thoroughbred racetrack and casino, and four managed casinos on Indian lands.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.Source: dBusinessNews
Friday, 23 September 2005
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