Nov. 17 (Bloomberg) -- Leon Black's Apollo Management LP is leaning on investors to exchange more than $3 billion of bonds in Harrah's Entertainment Inc. and Realogy Corp. for new debt as it tries to avoid default.

Harrah's, the Las Vegas-based casino company acquired by Apollo 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 2015 and 2018, according to a Nov. 14 statement.

Realogy, owner of the Century 21 and Coldwell Banker real estate brokerages, asked noteholders to exchange about $1.1 billion of bonds at a discount for new debt.

``All parties have an interest in keeping companies away from default,'' said Christopher Garman, chief executive officer of Garman Research LLC in Orinda, California, which studies the high-yield debt market.

Private-equity firms are struggling to restructure debt after a $750 billion spending spree last year crashed into the credit crunch and a worldwide economic slowdown. Moody's Investors Service said last week that defaults on high-risk, high-yield debt will triple to more than 10 percent in a year, increasing its forecast from 7.9 percent.

Bonds of both Harrah's and Realogy trade at as little as 15 cents on the dollar, with yields of more than 45 percent, on concern they will default amid the worst housing market since the Great Depression. Harrah's posted its fourth straight quarterly loss on Nov. 7. Realogy reported $209 million of losses in the last three quarters.

Record Spreads

Junk bonds are trading at the highest yields on record relative to benchmark rates, according to Merrill Lynch & Co. data. The spread widened 10 basis points to 17.2 percentage points on Nov. 14, according to Merrill's U.S. High Yield Master II index. Yields on the bonds rose to 19.6 percent.

About 1,777 bonds are trading with yields of at least 10 percentage points more than Treasuries, up from 296 in January, data compiled by Bloomberg show.

The current percentage of distressed issues implies a default rate of about 18 percent over the next 12 months, according to Martin Fridson, chief executive officer of investment firm Fridson Investment Advisors in New York.

High-risk, high-yield debt is rated below Baa3 by Moody's and less than BBB- by Standard & Poor's.

Realogy's $1.7 billion of 10.5 percent notes due 2014 fell 6.5 cents to 26.5 cents on the dollar on Nov. 14 to yield 52 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Harrah's 5.75 percent notes due 2017 traded at 15 cents on the dollar last week to yield 45.2 percent.

Dutch Auction

Harrah's, bought for $17.1 billion, wants to reduce debt and extend bond maturities, the company said. The terms of the exchange weren't disclosed in the statement.

Holders of existing notes maturing in 2010 and 2011 can 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 up to $325 million in cash to those investors, the statement said.

Harrah's said earlier this month that it's cutting costs and conserving cash after revenue fell 6.8 percent to $2.65 billion from $2.84 billion. Casino earnings before interest, taxes, depreciation and amortization, or Ebitda, fell 12 percent to $1.77 billion in the third quarter.

The company owns casino resorts including Caesar's Palace, Flamingo and Paris on the Las Vegas Strip, where gambling revenue has fallen for eight straight months and is headed for its biggest annual decline since data started being compiled in the mid-1980s, according to the Nevada Gaming Control Board.

Ratings Cut

Parsippany, New Jersey-based Realogy, purchased for $6.6 billion in April 2007, is trying to reduce debt by almost $600 million. Standard & Poor's slashed Realogy's corporate credit rating to CC from CCC last week. A CC rating means a company is ``highly vulnerable'' to missing a payment.

More companies are likely to seek deals with their creditors as the economy slows, Emile Courtney, an analyst at S&P, said in a telephone interview on Nov. 14.

``Given our previously stated view that Realogy's ability to service its current capital structure over the intermediate term will be challenged, we view the exchanges as being tantamount to default,'' Courtney said in a Nov. 14 report.

To contact the reporters on this story: Emma Moody at emoody@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net;

Last Updated: November 17, 2008 09:05 EST