vpFREE2 Forums

7 Star Lounge & Diamond Lounge changes - some actual info

#1

This is pretty typical of when companies are taken private by equity firms.
They often look for a fairly short term improvement in the bottom line
(especially in this case to pay down the massive debt) before selling the company
or assets. Only 2 ways to improve the bottom line is to bring in more
revenue or cut costs. Improving revenue is more difficult so cutting costs is very
common.

Their timing on this is good from my viewpoint since I haven't played in
Vegas this year and Vegas is the only place I play. I have been Seven * since
they started the program. With the cutback in good VP and their related
benefits, I had already decided to forget about Seven * and go for Diamond. With
these cuts I won't even bother with that. There are still other viable
alternatives for me and I will vote with my dollars. I do have a lot of points at
HET, so I will play thru $10 every 6 months to keep them active until I can
spend them.

These cuts are a really good example of businessmen who think they are
smart, acting real dumb. They will save pennies and lose dollars.

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#2

vp1040 wrote:

This is pretty typical of when companies are taken private by equity
firms. They often look for a fairly short term improvement in the
bottom line (especially in this case to pay down the massive debt)
before selling the company or assets. Only 2 ways to improve the
bottom line is to bring in more revenue or cut costs. Improving
revenue is more difficult so cutting costs is very common.

I wouldn't frame this as an effort to pad the bottom line -- my guess
is that it's part of a set of moves to ward off a liquidity crunch.

The buyout partners funded the purchase through the issuance of a
large chunk of debt that was bought up by Citi and a couple of other
big players. Those firms look to profit by repackaging the debt into
smaller parcels and reselling at with a modest mark-up.

However, the debt market debacle has put a scare into the market while
things shake out and sent new money running to lower risk securities
such as government bonds. The consequence is that Citi, et al, have
been left sitting on the Harrah's securities.

The impact to Harrah's and its buyout partners has to do with the fact
that they intended to tap the debt markets again to finance ongoing
investments, such as the continued development project at Caesars LV,
securing the bonds with Harrah's physical property.

The likely concern is that the bottleneck in reselling the buyout debt
may carryover as an impediment in issuing the additional debt. One
means of making that debt more attractive is to show greater cash flow
as a source for servicing the debt. A second benefit to cutting
expenses is that more of the anticipated cash needs can be funded
internally.

The worse case scenario for Harrah's is that it's unable to tap
sufficient funds in the market to fund expansion and has to
temporarily cap current projects. That's something against which a
judicious amount of precaution is warranted.

In looking to nickel and dime the player lounges, I expect most here
agree that Harrah's is terribly shortsighted. I can't speak to the LV
environment, but the lounges are an integral part of the player
experience in AC (the players who wait on line 20+ minutes at opening
will likely stage a small riot in reaction to a sharp cutback). Cut
these lounges to little more than peanuts and players will vote with
their feet.

- H.