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Apollo gamble on Harrah’s marked down

The stakes are raised in the gaming industry as a listed-investment vehicle of private equity firm Apollo Global Management marks down its co-investment in casino company Harrah’s Entertainment by 25%. Harrah’s was acquired by Apollo and TPG for a total of $17.1bn earlier this year.

A listed investment vehicle of private equity firm Apollo Global Management has marked down its investment in casino operator Harrah’s Entertainment by 25 percent.

Apollo Alternative Assets’ co-investment in operator – which runs 38 casinos in the US, Canada and Uruguay including Caesars Palace in Las Vegas and Atlantic City – was valued at $179.5 million (€ million) on 31 March this year but was marked down to $134.3 million in the three months to June 30.

During the second quarter Harrah’s reported revenues of $2 billion, a 3.7 percent decrease from the same period in 2007. Adjusted EBITDA dropped 20.6 percent year on year, from $534.2 million to $424.2 million.

A declining US economy has hurt private equity and real estate investment firms’ plans to take advantage of the gambling industry, and in particularly Las Vegas. In June,  a consortium composed of New York-based private equity firm York Capital, Australian billionaire James Packer and Texas developer Christopher Milam abandoned a planned $5 billion casino development in the Nevada city because of financial turbulence caused by the credit crunch. The project had been slated to begin in July.

Meanwhile the $6.1 billion takeover of US casino and racetrack operator Penn National Gaming by private equity firms Fortress Investment Group and Centerbridge Partners collapsed in July because of failures in the credit markets, the slowing economy and delays in acquiring the necessary regulatory approvals in the 15 states where Penn operated.

Apollo Alternative Assets is a listed vehicle that invests in and co-invests with Apollo Global Management’s private equity and capital markets investment funds. In January, Apollo Global Management and TPG closed the $17.1 billion deal to acquire Harrah’s. The deal included $3 billion of equity, including $1.3 billion from Apollo. With the assumption of approximately $10.7 billion in debt, the total transaction price was around $27.8 billion.

Other private equity real estate firms have invested in casinos including Goldman Sachs’ Whitehall Street Real Estate funds which purchased four casinos from Carl Icahn’s American Real Estate Properties for $1.3 billion (€954 million) last year. The portfolio included the Stratosphere Casino Hotel & Tower, Arizona Charlie’s Decatur and the Arizona Charlie’s Boulder, all in Las Vegas, and the Aquarius Casino Resort, which is located in Laughlin, Nevada.

Los Angeles-based Colony Capital has also been a significant player in the gaming industry with investments in Resorts International, Groupe Lucien Barriere, Station Casinos, Aztar Corporation, RIH Casino Resorts, Kerzner International, Harveys Casino Resorts and the Las Vegas Hilton.