Why PH Casino Resorts Cancelled its Junk Bond Offering

Was it really because it called off its merger with Pinnacle Entertainment?
Ed ZwirnDecember 15, 2000

When the gaming companies PH Casino Resorts and Pinnacle Entertainment called off their planned $1.28 billion merger on Thursday, PH also said it pulled its bond offering that was planned to finance the deal.

Was the cancelled offering simply due to the fact that it wasn’t needed now that there is no deal?

When the company initially issued its press release announcing that the merger was off, it gave no further explanation.

However, Kathy Brunson of the Financial Relations Board, the outside public relations agency for Pinnacle Entertainment, says it was, in fact, market conditions which caused the postponement of the bond offering, not the cancellation of the merger.

“Their major concern is the state of the high- yield market right now,” she says of PH Casino’s decision. “It is truly just a postponement. There were no discussions at all on any renegotiations of any aspects of the [merger] deal.”


Brunson, however, declines to comment on how long the merger would stay on the table if unfavorable bond market conditions persist, as many are predicting.

The deal, as agreed to in April, called for Harveys Casino Resorts to acquire Pinnacle for $24 a share, plus the assumption of some $650 million of debt. PH Casino Resorts was set up by Harveys to carry out the acquisition.

In a related development, Harveys’s announcement also said the firm would be postponing cash tender offers required by the agreement. It also cancelled $150 million of Harveys’ 10.675 percent notes due 2006, and some $375 million of other notes due 2007.

The merger would have combined 11 casinos in Nevada, Mississippi, Louisiana, Colorado, Indiana, and Argentina.

The bond offering that was intended to finance the transaction would have been the largest junk bond deal to hit the market since EchoStar Communications sold $1 billion in junk bonds on Sept. 15.

The casino firm had been poised to sell $575 million of 10-year senior subordinated notes callable after five years at a yield of up to 11.75 percent.

In addition, the deal would have consisted of $50 million of senior exchangeable paid-in- kind securities expected to yield 4.5 percentage points more than the 10-year notes, or as much as 16.25 percent.

PH Casino debt is rated B2 by Moody’s Investors Service and single-B by Standard & Poor’s, or several rungs below investment grade.

Both ratings agencies recently warned that they might have to further downgrade the firm if the revenues from the new merger proved less than expected or if the firm pursued other debt-financed acquisitions.

But with money having hemorrhaged from junk bond funds over the past several months and the market for such issues in general having apparently evaporated, junk aficionados were trumpeting PH Casino as proof that firms with more speculative ratings could still raise money.