WILMINGTON, Del. (CN) – Harrah’s Entertainment is on the brink of insolvency and is “cherry picking among its investors” by issuing new bonds that will give “those elite individuals” priority over previously issued bonds “of the exact same category,” shareholders say in a federal class action. “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 class claims.
“On January 28, 2008, Harrah’s was acquired by affiliates of the private equity firms Apollo and TPG in a transaction valued at $29.7 billion, including assumption of $12.4 billion of debt but excluding transaction costs,” the complaint states.
“Since that acquisition, Harrah’s has been struggling with its debt load as the consumer spending crash has affected the casino and gaming market. Private equity firms like Apollo and TPG have been under pressure to ‘restructure debt after a $750 billion spending spree last year crashed into the credit crunch and worldwide economic slowdown.’ [The citation is to a Dec. 23, 2008 Bloomberg News Service report.] Harrah’s bonds trade for as little as 15 cents on the dollar, but produce yields of more than 45%, as investors are concerned that Harrah’s will go into bankruptcy. Harrah’s posted its fourth consecutive quarterly loss on November 7, 2008.
“On or about November 14, 2008, Defendants issued a private offering memorandum with respect to bond exchange tender offers (‘Exchange Offers’). The stated purpose of the ‘Exchange Offers is to reduce the outstanding principal amount of indebtedness of [Harrah’s] and to extend the weighted average maturity of [Harrah’s] outstanding indebtedness.’ … The Exchange Offers were, however, limited to ‘Qualified Institutional Buyers’ (‘QIBs’) and ‘certain non-U.S. investors located outside the United States.’ The controlling terms of the Exchange Offers were set forth solely in the private offering memorandum and not filed with the Securities and Exchange Commission.
“Defendants unilaterally and arbitrarily determined who and which entities were eligible as QIBs and certain non-U.S. investors located outside the United States. Defendants did not deem Plaintiffs and other Class members to be eligible for the Exchange Offers either as QIBs or as certain non-U.S. investors located outside the United States.”
Plaintiffs are represented by Rosenthal, Monhait & Goddess.