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Oct. 16, 2008
Copyright © Las Vegas Review-Journal

Harrah's chief financial officer dismisses talk about cash woes

By ARNOLD M. KNIGHTLY
REVIEW-JOURNAL

Patrons walk through the Caesars Palace casino Wednesday, the same day Harrah's Chairman and CEO Gary Loveman held a meeting with employees to discuss the economy and the company.
Photo by Louie Traub/Review-Journal

The economic downturn is forcing Harrah's Entertainment to cut costs and lay off workers, but the company's chief financial officer Wednesday dismissed as "absurd" any speculation that the company is in greater financial peril than its Strip competitors because of its heavy debt load and falling revenues.

"Companies don't go bankrupt because of earnings not meeting expectations but rather just (by) running out of cash," Jonathan Halkyard said. "It is our primary interest now in running this company that we don't run out of cash."

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    • Halkyard talked about the gaming company's finances on the same day that Harrah's Chairman and Chief Executive Officer Gary Loveman was in town for what company officials described as a regularly scheduled meeting with rank-and-file employees.

    Jan Jones, Harrah's senior vice president of communications and government relations, admitted Tuesday night that the backdrop for the employee meeting is different this year because of the state of the economy and the "massive layoffs" the company has announced in recent months.

    Jones acknowledged hearing rumors for about a week about Harrah's getting set to file for bankruptcy, but she called them "blatantly false."

    Halkyard added Wednesday that, despite the current economic problems, the company is generating enough cash flow to meet its debt obligations.

    "When we did the buyout in January, we put a lot of debt on the company," Halkyard said. "But we also provided for additional liquidity if we needed it."

    Harrah's Entertainment has $23.9 billion in debt split between two subsidiaries that were set up to finance the company's $17.7 billion buyout by private equity firms TPG Capital and Apollo Management. The company's 50 casinos in the United States and overseas generated $10.8 billion in revenue and $2.7 billion in cash flow for the past 12 months ending in June.

    That is enough cash flow for the company to cover an estimated $1.4 billion interest payment on debt that comes due next year, as well as enough to complete a $1 billion expansion project at Caesars Palace and a $100 million maintenance program, while drawing down just a small fraction of a $2 billion credit facility, Halkyard said.

    Halkyard described the $2 billion revolving credit facility as a "rainy day fund" that was set aside in case cash flow at the properties declined too far.

    The CFO said Harrah's has several other options available before it would need to tap too much of the credit facility should revenues fall too sharply.

    For instance, he said, the company could sell some of its unused property in Las Vegas or Macau or even halt construction on the Caesars Palace project, which will cost the company $500 million in 2009 to complete.

    "We would do anything we had to do not to burn through this," Halkyard said of the $2 billion credit line. "Everything we do around planning our capital expenditures for the next two years is to assure that if we have to, we can tap that revolving credit and not have to go to the banks."

    Halkyard, however, described halting the Caesars Palace project or selling land as last resort measures that are not being discussed at this time.

    "We wouldn't hesitate for a minute to do that (though) if the alternative was to have to go out to our banks and ask for money for new loans or renegotiate existing loans," Halkyard said.

    The company has been moving aggressively for several months because of the drop in consumer spending, especially among the gaming company's mostly middle-income customer base.

    "The company began taking measures in February to cut operating costs and capital expenditures to preserve cash in the economic downturn," according to Halkyard.

    The company also could reduce the amount it is spending on renovations and maintenance if it becomes necessary to cut expenses further, Halkyard said.

    Harrah's, which has 87,000 employees worldwide, including 21,849 full-time noncorporate level employees in Las Vegas, has also been laying off employees and reducing hours to cut expenditures.

    Jones, however, said the layoffs the company has had to make are no different than what other gaming companies are doing.

    Wachovia Capital Markets bond analyst Dennis Farrell Jr., agreed that Harrah's has no liquidity problems now and has several options to raise cash if the credit markets improve.

    "They could do some exchanges on their debt which is now trading at a significant discount," Farrell said. "There is a significant amount of financial engineering the company could move forward with in the near term."

    Halkyard, however, said if the company needed to go back to the banks to borrow or restructure its current loans, everything would have to be repriced at a higher cost than what the company now is due to pay.

    Besides the $1.4 billion interest payment that is due next year, Harrah's does not face any immediate bond payment requirements. A $375 million bond is due in March 2010, with a $750 million bond maturing in July 2010 and another $350 million coming due in May 2011.

    Nearly $6.5 billion in commercial mortgage-backed securities will come due in 2013, and $8.25 billion in debt is due in 2015.

    Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.

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    Cory wrote on August 03, 2009 09:39 AM: I just got back from a trip to AC and Bally's. The customer service was soo bad I had to make a site to explain my story. They either need new people or to pay them more. What ever will make the people not soo miserable to deal with. Check the reviews too terrible place. http://ballys.coryhelmuth.com/ check it out and see how bad the service and customer care was.. if you want write your comments to Joe Domenico the VP. Maybe speaking directly with someone in upper management will help instead of the useless customer service people. I even put up the pictures of the roaches in the bathroom. Sad Sad Place.


    anonymouse wrote on October 20, 2008 10:45 AM: I'm sure all the Harrah's big-whigs aren't having any cash woe's so it stands to reason they wouldn't know a
    'cash woe' if it came up and slapped them in the face.


    joe wrote on October 17, 2008 10:38 AM: I think Mauna Loa is referring to the social programs(medicare and social security to name two) started by FDR. I'd agree. The gov't knows nothing about keeping within a budget and the less gov't there is the better. All these programs have done is make Americans less realistic and responsible for their own lives because the gov't is there to bail them out just like it's doing with our corporations.


    new york wrote on October 17, 2008 08:10 AM: Who are these guys trying to fool, of course they are having cash flow problems, if they are not, then they are fooling themselves, they better start to cut back now, for when the cards start tumbling, it's going to fall mighty fast


    mauna loa wrote on October 17, 2008 02:07 AM: Memo to you don't say; Your esoteric ways are for the moronic fools. You sir are a true pseudo intellectual liberal government educated bewildered (kool-aid drinking alfred E. Newman looking B.O loving idiot). Por Favor, see if you can go back to the 7th or 8th grade, and start again. It might not be to late for you, and it will also get you out of the night shift at the 7-eleven. Not that there is nothing wrong with working the night shift at the local 7-eleven.


    Matt wrote on October 16, 2008 11:02 PM: What else is the CFO going to say? "Our financial situation is great even though we are in our second round of laying off employees"? Why else would Harrah's top executives provide this press realease? Give us middle class morons a break. Jeff German of the Las Vegas SUn last week stated That he expects Harrah's to file bankruptcy protection sometime easly next year".


    you don't say wrote on October 16, 2008 09:27 PM: Mauna loa,

    You're a simpleton and the biggest fool I have ever encountered! This economy problem has not been going on for 60 years, just the last 8 years. Republican't rule sucks almost as bad as you do. Get you head out of the sand or where ever it is and look around.


    jack buosi wrote on October 16, 2008 08:15 PM: Well the writing is on the wall for Vegas, they are almost giving trips away to us common folk from Canada to come down there. only question is which casinos will close first. by next summer 25 percent will be boarded up and Vegas will be better off for it, the strip has lost all its charm with the developments on every square inch with no sense of design or taste, the strip looks like hell now and the halted projects will remain an ryrsore for years as rusting hulks, greed and mismanagement has finally caught up with Vegas.
    GOOD LUCK


    joe wrote on October 16, 2008 06:40 PM: Keep the low slot payouts and pathetic comps coming Harrah's! Maybe by this time next year you'll be out of the casino business for good! 'K-mart' of casinos is the best description I've ever heard for Harrah's.


    Mauna loa wrote on October 16, 2008 05:23 PM: Have a good night Leslie, you know I teach, so I only do this for the students. I actually make them read these blogs. Not only from the RJ, but from other sources too. I learn something new everyday. You should see the blogs over this kidnapping of this 6yoa child. The people called it (drug deal gone bad) right from the start. I just hope the young man is found safe & sound.


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