The House Always Wins

One of worst bonds I ever bought from a bond desk were some crappy Harrah’s 10 year notes. This was at the peak of the buyout boom and you could not find anything of quality that paid much more than a Treasury. At the time, the press was having a bru ha ha over the stupidity of the Chinese government that were buying 10 year Treasuries at 4.5%. What were they thinking? You could get 8% on Harrah’s notes and of course rates would be going up soon. Plus, TPG and Apollo wouldn’t be buying it for $30 billion if it wasn’t a good deal. How wrong we were. The Chinese ate our lunch as Treasures rocketed in price two years later, they made billions, and I was sitting on notes dropping in value each day. After cutting my losses and moving on, I wanted to look back and see what the last hand. In this weeks Business Week Christopher Palmeri writes about the aftermath. In the end, it makes me sick to see firms simply renegotiate the loans under the threat of bankruptcy. I thought 60-70 cents on the dollar was a horror show, but this month that is exactly what Harrah’s tuned the chips into – 63 cents on the dollar, and less interest to boot! Read more at BusinessWeek.com

Harrah’s Entertainment is having a little luck. The wounded casino giant has persuaded bondholders to forgive some of its debt, twice now. In the latest deal, on Apr. 9, investors agreed to exchange $5.9 billion in loans for roughly $3.7 billion in cash and new debt, taking a 37% cut on their principal.

Read the whole article on how the house brought down the investors here.