Harrah's bets on California's teachers

[JSTAT]

Harrah's suffered a $1.621 billion loss in the 3rd quarter of 2009 and CEO Gary Loveman said his company is "addressing our capital structure to cope with the protracted economic slump" in a statement published in the October 27, 2009 Las Vegas Sun. On November 4, 2009 the New York Post reported that one of Harrah's owners (Apollo Management) is "doubling down" on its investment to gain control of the company if restructuring is required due to Harrah's massive debt. Doubling down at the game of blackjack with a 9 vs ace is not a smart play, so partner TPG and minority investor Blackstone Group did not bet with Leon Black's Apollo. Where did all this capital come from?....read more with links at http://www.examiner.com/x-18051-San-Francisco-Blackjack-Examiner~y2009m11d4-Harrahs-bets-on-Californias-teachers

This article is a sequel to private equity firm Apollo Management's mishandling of Harrah's by exploiting the California State Teachers Retirement System (CalSTRS) along with CalPERS cited in the first article. It looks like Harrah's is positioning itself for debt restructuring in the near future, off the backs of teachers.

 

[JSTAT]

Here is the complete article from the above post. The trilogy of articles (posted here on bjinfo) concerning Harrah's, Apollo Management, and CalPERS has set off a firestorm in California's politics. The clueless risk managers at CalPERS are getting their clocks cleaned with the help of the search engine power of Ken Smith's site...

Harrah's suffered a $1.621 billion loss in the 3rd quarter of 2009 and CEO Gary Loveman said his company is "addressing our capital structure to cope with the protracted economic slump" in a statement published in the October 27, 2009 Las Vegas Sun. On November 4, 2009 the New York Post reported that one of Harrah's owners (Apollo Management) is "doubling down" on its investment to gain control of the company if restructuring is required due to Harrah's massive debt. Doubling down at the game of blackjack with a 9 vs ace is not a smart play, so partner TPG and minority investor Blackstone Group did not bet with Leon Black's Apollo. Where did all this capital come from? It is known that the California Public Retirement System (CalPERS) is Apollo Management's cash cow by committing $4 billion that helped Harrah's according to the Wall Street Journal October 23, 2009. But Harrah's capital structure did not stop here and another retirement fund was needed to structure the debt.

The California teachers $120 billion retirement fund CalSTRS is also invested with Apollo Management, TPG and Blackstone Group and have also taken a bath with its investments in Harrah's. Calls to the CalSTRS Chief Investment Officers office was not returned on why this trio of private equity firms were the leading losers of its Private Equity Portfolio Partnership. If CalSTRS and CalPERS gets wiped out by these corporate raiders, the taxpayers of California will have to foot the bill according to the state's constitution. If California defaults on this obligation, the United States government will bail out these public employees pensions.

Las Vegas was built on Teamsters pension money through the mob before Howard Hughes bought them out to legitimize casino gambling. This opened the doors to Wall Street's taking a piece of the action by offering shares to the public. Corporations such as MGM Mirage and Wynn Resorts offer the public the opportunity to invest in these companies and have a say at shareholders meetings. Coming full circle from the gangland days to Harrah's where the public has no say (because it is a private company) while its money is at stake.

 

[JSTAT]

Harrah's, Apollo Management, and CalPERS/CalSTRS debacle

The California Public Employees Retirement System (CalPERS) has a 9% stake in the private equity firm Apollo Management which owns most of Harrah's Entertainment. CalPERS also shelled out close to $4 billion to keep Apollo above water like a floating craps game. Harrah's was bought at its high before the financial collapse, leading Apollo's CEO Leon Black to seek new investors. Private investors were not willing to invest while CalPERS plunged in due to double digit returns from Black's magic touch. The Chief Investment Officer of CalPERS, Joseph Dear, decided to up the ante of the Alternate Investment Program to 14% of the $200 billion retirement fund. It is possible that California is chasing good money after bad money with Black's prior controversial history with Michael Milken. It's a crapshoot.

Harrah's has pulled in its horns by offering 6:5 blackjack, lower video poker payouts, and less comps. A glass of wine at the Paris restaurant bar in Las Vegas costs $15! Harrah's is known as the "Evil Empire" on blackjack newsgroups such as blackjackinfo.com and bj21.com message boards because of its tight games. But for California to survive, more gamblers must play or stay at Harrah's properties to get out of this mess. Harrah's should use the Steve Wynn or MGM Mirage's business model by offering looser blackjack games that pay 3:2 blackjacks, stand on soft 17, late surrender, and resplit aces.

California can get out of this jam by cashing out and securing all of its retirement funds in United States Treasury bonds. It seems conservative, but an old saying professes, "light gains make heavy purses."

Harrah's suffered a $1.621 billion loss in the 3rd quarter of 2009 and CEO Gary Loveman said his company is "addressing our capital structure to cope with the protracted economic slump" in a statement published in the October 27, 2009 Las Vegas Sun. On November 4, 2009 the New York Post reported that one of Harrah's owners (Apollo Management) is "doubling down" on its investment to gain control of the company if restructuring is required due to Harrah's massive debt. Doubling down at the game of blackjack with a 9 vs ace is not a smart play, so partner TPG and minority investor Blackstone Group did not bet with Leon Black's Apollo. Where did all this capital come from? It is known that the California Public Retirement System (CalPERS) is Apollo Management's cash cow by committing $4 billion that helped Harrah's according to the Wall Street Journal October 23, 2009. But Harrah's capital structure did not stop here and another retirement fund was needed to structure the debt.

The California teachers $120 billion retirement fund CalSTRS is also invested with Apollo Management, TPG and Blackstone Group and have also taken a bath with its investments in Harrah's. Calls to the CalSTRS Chief Investment Officers office was not returned on why this trio of private equity firms were the leading losers of its Private Equity Portfolio Partnership. If CalSTRS and CalPERS gets wiped out by these corporate raiders, the taxpayers of California will have to foot the bill according to the state's constitution. If California defaults on this obligation, the United States government will bail out these public employees pensions.

Las Vegas was built on Teamsters pension money through the mob before Howard Hughes bought them out to legitimize casino gambling. This opened the doors to Wall Street's taking a piece of the action by offering shares to the public. Corporations such as MGM Mirage and Wynn Resorts offer the public the opportunity to invest in these companies and have a say at shareholders meetings. Coming full circle from the gangland days to Harrah's where the public has no say (because it is a private company) while its money is at stake. At least the mob made money running Las Vegas casinos.

Investments in the profitable bond company PIMCO run by Bill Gross will be cut in half by the California Public Employees' System (CalPERS) in spite of turning a profit for them, if approved at the Nov.16 CalPERS Board meeting. Bill Gross is known as the "Bond King" and cites his blackjack card counting experience to guide his business decisions for PIMCO. He turned $200 into $10,000 one summer in the 60's after reading the book "Beat The Dealer" while racked up in a hospital after an accident. The man knows risk management and made a profit during the financial meltdown while pension funds around the country took a bath. CalPERS decided it was smart to allocate more into the risky private equity funds.

State pension funds are “dumb” clients according to State Street Bank's whistleblowers in a suit filed by California's Attorney General Jerry Brown. CalPERS and CalSTRS (California State Teachers' Retirement System) were skimmed $56.6 million in currency exchanges and want it back. CalPERS also was allegedly hoodwinked by Alfred Villalobos, a former board member who took $60 million in kickbacks from Leon Black's Apollo Management , Black's brother-in-law's CIM Group in Los Angeles, and Arvco Financial Ventures/Arvco Capital Research owned by Villalobos. This is small potatoes compared to the billions already lost from the $200 billion CalPERS and $120 billion CalSTRS.

Gross contends investments in casinos will take a nosedive in the near future, not good news to the risk managers who chose to chase good money after bad money. CalPERS is in at least $4 billion with Apollo Management who owns struggling Harrah's with TPG and minority partner Blackstone Group. United States Senator Harry Reid claims that he saved 31,000 jobs at Harrah's properties in a provision in the stimulus bill signed by President Obama this year. Harrah's was allowed to kick the can down the road by restructuring debt. Obama's signature allowed Harrah's to deleverage close to $4 billion in debt and keep the company above water at the expense of California's taxpayers, if CalPERS/CalSTRS goes belly up. If California fails to pay up, the United States government is obligated to pay, and guess who is stuck with the bill?

Article published at http://www.examiner.com/x-18051-San-Francisco-Blackjack-Examiner~y2009m11d15-Harrahs-Apollo-Management-and-CalPERSCalSTRS-debacle

 

[JSTAT]

Attended the CalPERS board meeting on 11/16 and the recommendation to cut PIMCO's contribution was approved. I read the last three paragraphs of my article (Harrah's, Apollo Management and CalPERS/CalSTRS debacle) in "Public Comment's" before the packed Lincoln Auditorium in Sacramento, because CIO Joseph Dear took Alternative Investments Management (AIM) off the agenda in the last minute. My response to AIM was approved by the board before the presentation of former Secretary of State Madeleine Albright's speech, and was allowed to speak moments before her. It was a "see no evil, hear no evil, and speak no evil" response by most of the board during my presentation ripping the board's bad decisions.

 

[Mr. T]

Tell us what Harrahs is really trying to do.
From the financial pages that I glance through it sounds like Harrahs is doing something like a GM restucturing but without a government bailout.
It is garnishing something like a 80% of bond holders in their corner so that they have complete control and advantage and can then restucture the company and cut out the senior bond holders. They can then issue new bond at a higher rate and with a maturity date far into the future so they can shut off default of their existing upcoming bond maturity.
Is this correct and have they succeded in doing this.

 

[JSTAT]

Tell us what Harrahs is really trying to do.
From the financial pages that I glance through it sounds like Harrahs is doing something like a GM restucturing but without a government bailout.
It is garnishing something like a 80% of bond holders in their corner so that they have complete control and advantage and can then restucture the company and cut out the senior bond holders. They can then issue new bond at a higher rate and with a maturity date far into the future so they can shut off default of their existing upcoming bond maturity.
Is this correct and have they succeded in doing this.

United States Senator Harry Reid claimed that he helped save 31,000 jobs at Harrah's with a provision in the stimulus bill signed by President Obama, so they did receive a government bailout. http://www.lasvegassun.com/news/2009/nov/08/give-credit-where-its-due-reid-saved-jobs/ The bonds were pushed back to a later maturity date and wondered if CalPERS got burned in the process. I posed this question to CalPERS board member/California's State Controller John Chiang and he said didn't know! Harrah's owner, Apollo Management, received a subpoena from CalPERS to air out the discreprencies. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1Zm6rd4t2pc&pos=7

Apollo's Leon Black is spending money like a drunken sailor by buying up some of Planet Hollywood and Foxwoods debts http://www.benzinga.com/markets/company-news/42964/billionaire-leon-black’s-interest-in-the-gaming-sector-–-looks-for-posses in hope of controlling these companies if they go bankrupt. Black is also planning to list Apollo Management as Apollo Global Management on the NYSE this year in hopes of capitalizing on the momentum of Wall Street. Black's capitalization from pension funds are drying up and if the NYSE listing doesn't pan out, Harrah's will be in a world of hurt.

 

[Mr. T]

I presume you have skin in the game as the saying goes. How did it affect you. Did you have any option or choice on this matter.

 

[JSTAT]

I presume you have skin in the game as the saying goes. How did it affect you. Did you have any option or choice on this matter.

I live in California and if Apollo Management burns CalPERS/CalSTRS of its funds, the taxpayers of California will have to foot the bill. My wife is a public school teacher and she was concerned about her retirement program, CalSTRS, and asked me to check into the fund. CalSTRS did not return my calls which inspired a "fired up, ready to go" attitude against CalPERS/CalSTRS. If California defaults on this debt obligation, then all Americans will have a "skin in the game". I decided to connect the dots and report what the major media has ignored, until now.