Harrah's hit with class-action lawsuit over debt plan

19.02.2009, Add Harrah's Entertainment Inc. to the list of Las Vegas gaming companies facing class- action lawsuits filed by securities lawyers.

Harrah's was sued last month in U.S. District Court in Delaware by two bondholders who claim a recent debt-exchange deal engineered by Harrah's benefited some big corporate bondholders while placing other classes of bondholders in jeopardy, should Harrah's default on its debt or file for bankruptcy protection.

Harrah's is "on the verge of bankruptcy, debt default and other events of insolvency," the lawsuit charges.

"In an effort to ensure that only a limited class of individuals and entities reap the rewards of their debt investments in Harrah's to the detriment of other investors, defendants have completed bond tender offers that benefit those select individuals and entities to the exclusion of all others. Without any lawful justification for cherry- picking among its investors, defendants' bond tender offers have allowed those elite individuals and entities to obtain newly-issued bonds that will take priority over and otherwise subordinate previously-issued bonds of the exact same category," the lawsuit states.

The plaintiffs are Willis Shaw and S. Blake Murchison. Murchison also filed a class- action lawsuit against Station Casinos Inc. last week alleging Station's plan to reorganize its debt in bankruptcy court fails to treat all bondholders fairly. In unrelated cases, Las Vegas Sands Corp. is being sued by class-action attorneys over the decline in its stock price.

Harrah's and members of its board of directors, who were also sued, have not yet responded to the Shaw-Murchison lawsuit. Harrah's declined comment on the lawsuit Monday afternoon, citing its policy of not commenting on pending litigation.

"Plaintiffs' bond holdings have been subordinated to the newly-issued bonds and, as a result, have been likely rendered worthless as the specter of Harrah's insolvency approaches," the suit charges.

The litigation is set against the backdrop of numerous gaming operators in Las Vegas and around the world facing difficulties in financing their debt as the recession has reduced travel to Las Vegas and other gaming markets. It has also reduced casino operators' winnings from gamblers.

Harrah's on Friday disclosed it has asked its banks for an advance of USD 740 million on a USD 2 billion credit line -- maxing out that line of credit and prompting one analyst to say it appears Harrah's needs to hoard cash to cover its expenses while it looks for a way to reorganize its massive debt load that was last reported at more than USD 24 billion.

That analyst was Chris Snow. His company, CreditSights, issued a report Monday indicating the cash infusion doesn't change Harrah‘s fundamental problem of having too much debt to service given the economic slowdown hitting its casinos and resorts -- even taking into account cost-cutting moves by Harrah‘s aimed at saving USD 440 million per year.

The report said Harrah's, which was taken private last year in a USD 30.7 billion deal that added to its debt load, "is running on borrowed time."

"At this point, the company's next move could include another bond exchange, a bankruptcy offer to bondholders, or hope that gamblers return," CreditSights said.

On Friday, Harrah's spokesman Gary Thompson declined comment on the possibility of a bankruptcy reorganization, calling it speculation.

Harrah's, with numerous properties on and near the Las Vegas Strip, such as Caesars Palace, Harrah's Las Vegas and the Imperial Palace, has 51 casinos in six countries with 40,000 hotel rooms. It hasn't yet reported fourth-quarter numbers, but for the third quarter of 2008 it posted a loss of USD 129.7 million on revenue of USD 2.645 billion.

The Shaw-Murchison suit was filed by attorneys Joseph A. Rosenthal and P. Bradford deLeeuw of the Wilmington, Del., law firm of Rosenthal, Monhait & Goddess.

Joining in the suit were attorneys from the Boca Raton, Fla., firm of Coughlin Stoia Geller Rudman & Robbins LLP -- the same firm participating in Murchison's suit against Station Casinos. An additional plaintiffs' attorney against Harrah's is S. Gene Cauley of Little Rock, Ark.

Source: LasVegasSun.com

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