RLPC-UPDATE 2-Harrah's $9 bln loan sale expected soon -sources

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By Smita Madhur and Dena Aubin

NEW YORK, Jan 8 (Reuters) - A $9 billion loan sale by Harrah's Entertainment could mark a crucial test of investor appetite for takeover-related debt as bankers try to clear a $150 billion leveraged loan pipeline, according to Reuters Loan Pricing Corp.

Harrah's HET.N, the world's biggest casino operator, is expected to begin selling the debt soon to help back its $27.8 billion buyout by Apollo Management and Texas Pacific Group, sources told Reuters LPC on Tuesday.

One of the first large LBO-related loans to be marketed this year, the bank loan consists of a $2 billion, six-year revolver and a $7 billion, seven-year term loan.

Harrah's would be a good choice to kick off the 2008 LBO financing calendar because it is one of the better casino operators in the business and has an extensive line of gaming properties, Citigroup high-yield strategist John Fenn wrote in a report on Friday.

"We actually believe the market is ready for deals and are certain that the reverse inquiry process is in full swing," Fenn wrote.

Reverse inquiries, or interest expressed by one or a handful of large investors, accounted for significant demand for some of last year's large LBO financings.

HIGH-YIELD BONDS EXPECTED

Harrah's LBO financing also includes up to $6.025 billion in senior unsecured bridge loans from Citigroup and Deutsche Bank, Harrah's said in a filing last February. Those bridge, or temporary loans, are expected to be replaced with high-yield bonds.

At the time of the filing, the company also said additional debt financing would come from $7.25 billion in commercial mortgage-backed security loans led by J.P. Morgan.

It was not clear at press time, however, whether those loans would now make it into the capital structure, given the deterioration in the credit markets over the past six months.

Sponsors Apollo Management and Texas Pacific Group had agreed to contribute $2.9355 billion each in equity, according to the filing.

The leveraged loan market has been trying to recover its footing since negative news on subprime mortgage fallout, high oil prices and inflation undermined sentiment late last year, according to Reuters LPC.

Alltel, one of the last companies to attempt a jumbo LBO loan, in November had to downsize it from a planned $6 billion to $3.2 billion in size and offer steeper discounts than first planned.

OPTIONS INDICATE DEBT SALE WORRIES