Thursday, February 25, 2010

LATE BREAKING: Harrah's Owners Start Buying Palms Debt, But George Maloof Denies Plans for Harrah's Takeover

Major H/T to Steve Friess for this BIG scoop! First, The Financial Times reported on this major bombshell to drop...

Texas Pacific Group, one of the private equity sponsors of Harrah’s Entertainment, has been accumulating a stake in Palms Casino’s fully drawn USD 380m revolver, two sources close to the situation and a lender told Debtwire. The investment points toward a systematic strategy by Harrah’s to acquire other casinos through their distressed debt, said a buyside source.

TPG and Apollo Management – Harrah’s other sponsor – just completed the acquisition of the Planet Hollywood casino-hotel built around their purchase of a USD 140m chunk of the casino-hotel’s junior interest debt at a deep discount last summer. Palms, which is owned by the Maloof family, is in the middle of negotiations with lenders to cure a covenant breach, creating a potential takeover opportunity for anyone with a blocking stake in the debt.

TPG started buying bank debt issued by Palms parent company Fiesta Palms in the 40s and kept buying all the way to present levels in the 70s, said multiple buyside sources. A USD 42.75m slice of the revolver that was put up for auction and sold last week in the mid-70s but it remains unclear who the buyer was, said a source close to the situation.

And considering Palms' rough 2009 earnings (total EBITDA was only $12 million, compared to $70 million in 2007), continued vacancy problems at Palms Place (supposedly hovering around 33% occupancy late last year), and outstanding debt issues, it was starting to look like this would become a (yet another) prime Harrah's takeover target...

But George Maloof spoke with Steve Friess today and did his best to shoot down any takeover rumors...

I just hung up with George Maloof, who cast doubt on the Financial Times' report that Harrah's has been buying up Palms debt by saying, flat-out: "They're not going to take over my company. It’s so far remote."

Maloof refused to get into any more specifics, repeatedly saying that they're a private company and that they never commented on their financials. I asked whether the Palms had taken a hit during the recession and he answered: "We haven’t been immune to it but we’re doing much better. 2009 was tough for everyone. We’ve been doing much better."

Now neither George Maloof nor Steve Friess was able to get a comment on this from anyone at Harrah's, so we don't really know yet what their intentions are. The Financial Times speculated that Harrah's would likely end The Palms' celebrity playground reputation by relaunching it as a mid-market "Middle America" kind of place if they were to take over. I'm sure that must have horrified The Palms' people, since they've worked hard to brand their resort as "the ultimate infamous party palace" ever since MTV taped "The Real World: Las Vegas" there in 2001.

So for now, it looks like The Palms won't be joining the Harrah's family any time soon. Stay tuned...

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