BUYER'S ATTEMPT CREATIVE FUNDING

Implications: It is not a new idea to try and find creative funding for large projects in the casino industry. Remember that it has not been all that long ago that most of the fancy financing came through or with the backing of majors labor unions. In the case of Harrah's purchase, they are willing to subordinate some of their real estate and casino properties as collateral for cash. It seems that Apollo Management and Texas Pacific will put up just under $3 billion in cash each to make this purchase and finance the remainder of the $17 plus billion buyout figure - keep in mind they will also acquire about $10.5 billion in debt.

Analysis: It's going to be a mighty debt service for the new owners of Harrah's Entertainment. The question should be, how will they approach paying off or reductions of these debts to get in a sensible and profitable position. They will also find themselves in additional debt when they proceed with the planned development of the 350 acres on the Las Vegas Strip. Not only will that incur additional debt, they will have to close some of their properties from the Venetian to Flamingo Road. It will cause a very real dip in their cash flow for the term of the construction. It's a dilemma they would have had to face even if they decided not to sell and developed the property without new owners. There is certainly going to be some second guessing as to how this new acquisition will effect their continued leadership in the gaming industry. Even though they said that they are not, at this point, considering getting rid of any existing properties - look for a change in attitude when the new owners officially take the helm.

There have been rumors galore about the Rio Las Vegas being on the chopping block - this has been denied by Harrah's, however not with the enthusiasm it should be. I think that it is a clear fact that some of their underachieving hotel/casinos will eventually be placed on the market. I don't feel that there will be a great bit of noise about any sale, but that certainly may happen sooner than later. There has been some interest by existing companies now in Las Vegas to acquire the Rio. Harrah's has generally denied any interest on their part at this time. The guess here is that they are stymied by their purchase to make any decisions prior to the take over by Apollo and Texas Pacific.

This is a major commitment by both Harrah's and AM and TP - the long term future could be very bright. They have an opportunity to move Harrah's into the higher echelon of casino developers - they need to change their image from being just a grind joint company to a member of the elite like MGM - Wynn - Venetian to name just three. Their new strip development will do just that for them. The industry needs more from Harrah's - I hope that they take a leadership position - meaning that the amount of properties is not what make you great - it the quality and profitability that sets you aside from the rest of the players in this very special industry...