Two major casino operators, Harrah’s Entertainment and Station Casinos, that went private in 2007 are now looking at restructuring their debt as the economic climate continues to worsen.

Both companies have offered debt exchanges to bond holders as a way to shore up increasing debt loads. Both of the offers are being met with some scrutiny.

Harrah’s said holders of about $4 billion of its debt have agreed to the proposal. That number accounts for about 36 percent of its holders. Harrah’s says the offer is oversubscribed.

As part of the restructuring, the company is offering to swap out old bonds for up to $2.1 billion in new, second-priority senior secured notes with later maturity dates.

Debts maturing between 2010 and 2013 will be swapped for notes due in 2015; bonds that mature between 2015 and 2018 will be exchanged for notes due in 2018. All new notes will pay a coupon of 10 percent.

Reuters is reporting that the majority of bondholders who are interested hold the notes that expire at a later date. Only about $286 million of the $1.55 billion in bonds maturing in 2010 and 2011 have been offered in the exchange.

Christopher Snow, an analyst at the research firm CreditSights, told Reuters that with the company likely facing liquidity challenges in 2010 and 2011, the bond holders of these notes are in a strong position to hold out for a better offer.

“Without gaining acceptance from at least the majority of 2010 holders, the company has little choice but to offer better terms, unless it is willing to put itself at the mercy of the capital markets 15 months hence,” Snow said.

Station Casinos had hoped to swap notes maturing in 2012 for notes that secure in 2016. The move could reduce the company’s debt by $1.4 billion, but Station withdrew the offer after it was rejected by several bond holders.

Snow said the company has its “back against the wall” and is “likely to breach its financial covenants by the end of the year.”

Owners of the company are also looking at loaning the company up to $500 million in the form of an unsecured, junior subordinate loan.

For both companies, the troubles string back to the leveraged buyouts in 2007. The $9 billion buyout of Station Casinos and the $31 billion buyout of Harrah’s Entertainment came during a peak time in the casino industry. At the time, buyers were willing to take on a heavy debt load based on what looked like a promising future.

But while 2007 was a good year, revenues throughout the companies have been slipping throughout 2008, and Harrah’s recently reported a net loss of almost $130 million in the third quarter.

By GGB Staff

Staff writers for Global Gaming Business magazine. Las Vegas, Nevada.