Harrah's upsizes B loan ahead of launch, floats talk; LCDX up with stocks

By Sara Rosenberg

New York, Jan. 14 - Harrah's Operating Co. Inc.'s term loan B size has increased from initial expectations as the company's CMBS offering has been reduced, and price talk on the institutional debt emerged ahead of Tuesday's launch.

In the secondary, LCDX 9 was slightly stronger with equities, while cash was basically flat with little volume.

Harrah's raised the size of its seven-year term loan B, released price talk and detailed the multi-tranche structure on the B loan as syndication is getting ready to kick off with a bank meeting on Tuesday morning, according to a market source.

The term loan B was upsized to $7.25 billion from the previously expected size of $7 billion and the entire tranche is being talked at Libor plus 300 basis points, the source said.

Like previous large leveraged buyout financing deals, Harrah's term loan B is divided into a B-1, a B-2 and a B-3.

The term loan B-1 is $2.25 billion and is prepayable at par, the term loan B-2 is $3 billion and has soft call protection of 103 in year one, 102 in year two and 101 in year three, and the term loan B-3 is $2 billion and is non-callable for three years, the source said.

Original issue discounts on the debt are expected to be announced at the bank meeting, the source added.

Harrah's $9.25 billion senior secured credit facility also includes a $2 billion six-year revolver.

Another source said he was surprised to see that Harrah's is coming to market now since conditions aren't all that great. He also said that it would be an interesting deal to watch and wondered if the term loan B-1, B-2 type structure might be "played out."

A third source, however, remarked on the positives working for the transaction, such as that it's a strong credit compared to a lot of other leveraged loans that have been out in the market.

"It's one of the premier casino assets in the world. In general this business is considered fairly recession proof. It's a cash cow. I guess it'll be an interesting one. If this can't get done, I don't know what can," the source added.

Bank of America and Deutsche Bank are the joint lead arrangers on the credit facility, and Bank of America, Citigroup, Credit Suisse, Deutsche, JPMorgan and Merrill Lynch will be joint bookrunners. Bank of America is the administrative agent, Deutsche is syndication agent, and Citigroup, Credit Suisse, JPMorgan and Merrill are co-documentation agents.

Covenants include a maximum net senior secured first-lien debt leverage test.

Proceeds will be used to help fund the buyout of the company by Texas Pacific Group and Apollo Management, LP for $90 per share. The transaction has a total value of $31.245 billion, including the refinancing and rollover of existing debt.

Other buyout financing will come from $6.096 billion of equity, $1.5 billion of senior unsecured payment-in-kind toggle notes, $5.275 billion of senior unsecured cash pay notes and $6.5 billion of CMBS debt.

The senior unsecured cash pay notes were upsized from a previously expected amount of $4.525 billion, and the CMBS financing was downsized from $8 billion.

Based on the 12 months ended Sept. 30, pro forma for the transaction, subsidiary guaranteed debt to adjusted EBITDA is 6.9 times, net subsidiary guaranteed debt to adjusted EBITDA is 6.5 times and adjusted EBITDA to cash interest expense of subsidiary guaranteed debt is 1.6 times.

The pro forma ratio of total debt, which includes retained notes, to adjusted EBITDA is 8.9 times, the pro forma ratio of total debt, net of cash and cash equivalents, to adjusted EBITDA is 8.4 times and the pro forma ratio of adjusted EBITDA to cash interest expense is 1.3 times.

Harrah's is a Las Vegas-based provider of branded casino entertainment.

LCDX gains with equities

Moving to trading news, LCDX 9 headed higher in sympathy with the stock market, according to a trader.

The index went out around 95.70 bid, 95.80 offered, up from Friday's levels of 95.55 bid, 95.65 offered, the trader said.

Nasdaq ended the day up 38.36 points, or 1.57%, Dow Jones Industrial Average was up 171.85 points, or 1.36%, S&P 500 was up 15.23 points, or 1.09%, and NYSE was up 91.87 points, or 0.98%.

As for the loan cash market, everything felt relatively unchanged as trading activity during the session was "pretty light," the trader added.

"There's a bunch of economic data coming out tomorrow so no one will do anything in front of that," a second trader remarked.

Scheduled for release on Tuesday is the advance monthly retail sales for December, the manufacturing and trade inventories and sales for November and the Producer Price Index for December.

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