“(Harrah’s) management and sponsors have likely bought the company more time with this exchange,” Farrell said in an investors note. “(Harrah’s) will likely strike a deal with their 2010 and 2011 note holders to provide even more runway for the company.”

Chris Snow, a bond analyst with CreditSights, said the latest debt swap should ease some of the company’s near-term liquidity issues, but “covenant compliance will become a substantive issue by the middle of 2010.” Snow said the debt swap cut Harrah’s annual interest payments by nearly $70 million, although it only “partially solved” the company’s long-term cash problems.

“The improvement to (Harrah’s) balance sheet is palpable,” Snow said in a Monday note to investors. “The company should now clearly get through 2010 without any liquidity problems. Beyond that, particularly in 2011, the company will face significant hurdles from its debt maturities.”

The just-ended swap exchanged bonds worth $5.6 billion for new 10 percent notes that will mature later, in 2018. Only $245.8 million in notes that were due to expire through 2013 were redeemed by investors, though. Harrah’s still has $514 million in notes maturing in 2010, and $964.2 million in notes maturing through 2013.

Snow said the 64 percent response rate to the debt swap offer suggests investors are cautious about Harrah’s ability to avoid having to file for bankruptcy to restructure its debts.

“The gains from this exchange were more substantial than the prior exchange as investors have become more skeptical on the company’s medium term prospects,” Snow wrote in his note.

Harrah’s said last month that revenues last year dropped 10.3 percent to $10.13 billion, driving its cash flow down 16 percent to $2.36 billion. The decline in revenues led the gaming company to say it may have trouble generating enough cash flow to securing new loans to service its $23.1 billion debt.

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