Harrah's offers 3 cents on the dollar for debt

What a deal, eh?
If you own $1000 in old Harrah's notes, they'll swap them out for $30 of new higher interest rate notes due in 2018.
Makes perfect sense from the company that advertised on a billboard for single deck blackjack with a "whopping" 6:5 payout.

(Dead link: http://www.cnbc.com/id/29518831)

Wow

Did they mention it was a "whopping" $30? Perhaps then they could score a few more takers on this deal!

Given a high enough interest rate, this could make sense. For example, if they offered a 10-year, $30 bond with a 50% interest rate with maturity in 2018, that'd be equivalent to a 10-year, $1000 bond at 5.6%. At such an high interest rate, there's very few people who would withdraw early, so it'd be effective at changing present debt to future debt.

Interesting idea.

callipygian said:

Given a high enough interest rate, this could make sense. For example, if they offered a 10-year, $30 bond with a 50% interest rate with maturity in 2018, that'd be equivalent to a 10-year, $1000 bond at 5.6%. At such an high interest rate, there's very few people who would withdraw early, so it'd be effective at changing present debt to future debt.

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It's harrah's. Those replacement notes are gonna be zero coupon, if you're lucky.

haha

moo321 said:

It's harrah's. Those replacement notes are gonna be zero coupon, if you're lucky.

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Exactly my thinking as well:laugh:

moo321 said:

It's harrah's. Those replacement notes are gonna be zero coupon, if you're lucky.

Click to expand...

This isn't a huge problem (for you, anyway). If you think Harrah's has a 2/3 chance of going under, then buy a $30 note at 60% interest, which will yield $3,300 if they don't go under and the EV has a premium of $100 over the original $1,000 for taking that chance. Remember that your $1,000 debt note is also worth $0 if they go Chapter 7, so the losses due to bankruptcy are the same whether you convert or not.

It might be a problem for Harrah's if they survive and have to pay out $3,300 in 2018 for every $1,000 of debt they currently owe, though. :laugh:

As a matter of fact, how Harrah's sets the interest rate for the notes is probably a direct indicator of what they think the probability is of their company going under.