Harrah’s Ratings Go South

Private-equity firms Apollo Management and Texas Pacific Group are in talks to buy Harrah’s Entertainment, prompting Standard & Poor’s to cut Harrah’s rating to junk status.

S&P lowered the casino operator to a BB+ rating, the highest rung on the speculative-grade ladder, from its lowest at BBB-, according to The Wall Street Journal. Another downgrade could be forthcoming.

Upon the announcement of the negotiations, investors raised Harrah’s stock from $66.43 a share to $75.68 September 29th. The private equity firms plan to buy Harrah’s at $81 per share in cash, or about $15 billion. The company has about $10.2 billion in debt.

This is the second time in a month the ratings service has changed Harrah’s rating, after changing it from “stable” to “negative” August 31st following Harrah’s announcement it was purchasing London Clubs International for about $530 million, the WSJ said.

With the current announcement, Moody’s changed its rating of Harrah’s from “stable” to “negative,” the paper said. Moody’s said it could downgrade the company if it agrees to the buyout or “pursues other debt-financed measures to increase returns to shareholders.”

The private equity firms, which traditionally have shied away from investing in the gaming business, must overcome the hurdle of obtaining casino licenses, according to the WSJ. Harrah’s operates in many jurisdictions in a dozen states, and the licensing process could take as long as two years, the paper said.