Nov. 17 (Bloomberg) -- Harrah's Entertainment Inc. is offering to exchange its bonds at a rate of as little as 40 cents on the dollar for new debt as the casino company tries to push back maturities and avoid default.

Harrah's, the Las Vegas-based casino operator acquired by Leon Black's Apollo Management LP and TPG Inc. in January, is offering holders of unsecured notes maturing from 2010 to 2018 as much as $2.1 billion of 10 percent, second-priority senior secured notes due in 2015 and 2018, according to a Nov. 14 statement.

Apollo is leaning on investors to exchange more than $3 billion of bonds in Harrah's and Realogy Corp. as they try to avoid default. Private-equity firms are struggling to restructure debt after a $750 billion spending spree last year crashed into the credit crisis and a global economic slowdown. Harrah's reported its fourth straight quarterly loss on Nov. 7.

``The idea is to get through a financial squeeze,'' said Martin Fridson, chief executive officer of money management firm Fridson Investment Advisors in New York. ``From the investor standpoint, it's beneficial if the investor winds up actually getting some financial benefit. It's kind of a win-win, which is a rare thing for the financial markets, but it is if you're avoiding the dead weight loss of a bankruptcy filing.''

Price Rises

Harrah's $500 million of 5.375 percent debt due in 2013 rose 8 cents to 27 cents on the dollar at 1:24 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes yield 40 percent.

Holders who tender by Nov. 28 will receive more favorable terms, according to a copy of the offering memorandum obtained by Bloomberg News. Spokeswoman Jane Simmons declined to comment.

Owners of Harrah's $1 billion of 5.625 percent senior notes due in 2015, its $750 million of 6.5 percent securities maturing in 2016 and its $750 million of 5.75 percent debt due in 2017 will receive 40 cents on the dollar's worth of new 2018 notes. Those who tender after 5 p.m. on Nov. 28 and by Dec. 12 will receive 37 cents worth of new debt.

Investors that own Harrah's $718 million of 5.5 percent notes due in 2010 and its $363 million of 7.875 percent senior subordinated notes due in 2010 will receive as much as 100 cents on the dollar worth of 2015 notes, the memorandum said. Harrah's $328 million of 8.125 percent senior subordinated notes due 2011 and its $500 million of 5.375 percent senior notes due in 2013 will be exchanged at a rate of 80 cents and 50 cents of new 2015 debt, respectively, the documents said.

Toggle Notes

The $1.4 billion of so-called pay-in-kind toggle notes maturing in 2018 and the $4.9 billion of 10.75 percent senior notes due in 2016 will be swapped for new 2018 notes at rates of 57 cents and 70 cents on the dollar, respectively, according to the memorandum.

Harrah's will give the about $2 billion of eligible 2010, 2011 and 2013 notes first priority in the exchange, the documents said. The 2015, 2016 and 2017 notes being swapped at a rate of 40 cents will be given second priority, with up to $875 million in principal amount accepted, followed by up to $462 million in face value of the toggle notes, which have third priority.

Holders of old notes who don't tender their debt will be subordinated to the new second lien notes in a bankruptcy, the memorandum said.

Coercive Component

A distressed exchange offer ``frequently requires a coercive component,'' Fridson said. ``It's like the case where one member in a couple wants to get married and the only way to get it done is by threatening to break up.''

Holders of existing notes maturing in 2010 and 2011 may also choose to receive cash instead of the new 2015 notes they'd get by participating in a so-called Dutch auction. Harrah's will pay as much as $325 million in cash to those investors, the statement said.

Bank of America Corp. and Citigroup Inc. are managing the exchange. Danielle Romero-Apsilos, spokeswoman for Citigroup, didn't immediately return a call seeking comment. Louise Hennessy, spokeswoman for Bank of America, declined to immediately comment.

To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: November 17, 2008 15:55 EST