HARRAH’S BUYOUT CLEARS NEVADA

The largest buyout in gaming history cleared its next-to-last regulatory hurdle Thursday by getting final approval from Nevada regulators.

The Nevada Gaming Commission's unanimous decision to approve Harrah's Entertainment's $17.7 billion private equity buyout means the gaming company and its new owners are now just waiting for an OK from the National Indian Gaming Commission, which is expected by the end of the month.

The transaction is expected to close early next year.

Harrah's stock will no longer be traded publicly, but the company, which is being taken private in a joint-venture partnership between Apollo Management and TPG Capital, will still have to file quarterly earning reports to the Securities and Exchange Commission because of the public debt.

The approval came while Harrah's is under scrutiny and has been issued citations for improper hotel renovations at three of the company's Las Vegas properties. Gary Loveman, who will remain on as the company's CEO and chairman, acknowledged the problems during the hearing in a statement, although the commissioners never asked about the construction problems or the resulting criminal citations.

"From a regulatory standpoint, this particular application did not bring those issues into play in my mind," Chairman Peter Bernhard said after the meeting. "This is an issue that should be dealt with through the county process and other processes the (Gaming Control) Board may have available to us."

Commissioner Sue Wagner labeled the problems a "debacle" during the hearing, while Commissioner Art Marshall said he was satisfied with the steps Harrah's has taken to correct the problem.

Loveman assured regulators that the company is working with county officials and within the company to ensure there are no future problems and that "any future projects are absolutely controlled."

Since appearing before the Gaming Control Board two weeks ago, Harrah's has been served with 18 misdemeanor citations by the Clark County building division and could face more from the county fire department

The citations stem from improper renovations at the Rio, Harrah's Las Vegas and a company warehouse.

The company has disbanded Roman Empire Development, the subsidiary in the middle of the remodeling controversy, and it has fired 200 people.

"We understand that it is our job in senior management to set the appropriate tone for our business," Loveman told the commissioners. "Those standards can never be compromised by anyone on our team."

He declined to answer any questions about the citations or the remodeling problems after the hearing.

Loveman reiterated promises he made this month to the Gaming Control Board that the switch to private ownership will not affect the direction or plans of the company.

"We did not need to do a transaction like this to this to keep Harrah's successful," Loveman said. Instead, he said, private equity partnership's financial strength and business acumen in other industries will help the company continue to grow.

Kelvin Davis, a partner with TPG Capital, assured regulators that Loveman will remain in day-to-day control of the company.

"We do not expect to have any involvement whatsoever in the day-to-day operations," Davis said. "We'll be involved as board members. In that capacity we certainly intend to look very closely and think very hard about the varying capital expenditures that we'll have to make."

Loveman and four representative from each private equity firm will hold the nine board seats.

Apollo Management and TPG Capital are contributing a combined $6.1 billion cash to help finance the deal. However, $20.3 billion in debt financing will be added to the $4.5 billion in debt already carried by Harrah's to finance the deal, according to the testimony.

Harrah's Chief Financial Officer Jonathan Halkyard told regulators the financial structure is flexible to protect the company against a sudden downturn in the market but allows for continued growth.

Current ongoing capital improvement and development projects, including the $1 billion expansion at Caesars Palace, a proposed arena behind Bally's as well as projects in other jurisdictions, will be able to be funded through cash flow and the new credit facilities.

However, the affect of the large debt load on financing future development projects remains unclear.

"It's not going to weight them down from a capital investment perspective right now," said Dennis Ferrell Jr., a senior bond analyst with Wachovia Capital Markets. "It might limit additional capital projects going forward, but with the current pipeline there's enough financial flexibility to get there."

The new, private Harrah's growth strategy includes investing nearly $4 billion in maintenance and capital improvement projects during the next five years, according to the testimony.

However, the language of the presentation leaves unclear what will be available for a future development budget.

Harrah's owns or manages 50 casinos in the United States, including Rio, Paris Las Vegas, Bally's, Bill's, Flamingo, Imperial Palace, Harrah's and Caesars Palace in Las Vegas. The company also owns casinos in Uruguay, the United Kingdom, Egypt and South Africa and a golf course in Macau.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or (702) 477-3893.