DLJ bets on Hard Rock

Credit Suisse's private equity arm has acquired the Hard Rock Hotel and Casino in Las Vegas.

Last month, DLJ Merchant Banking Partners, the private equity arm of investment bank Credit Suisse, completed its acquisition of the Hard Rock Hotel and Casino in Las Vegas. The firm is working with Morgans Hotel Group on the deal and has arranged for Golden Gaming to manage the hotel's gambling operations.

The Hard Rock is DLJ's first casino acquisition in the US, though the firm has made investments in the Gala Casino chain in the UK and invested in other gaming-related companies. Managing director Neal Pomroy also points out that Steve Rattner, the head of DLJ Merchant Banking, formerly helped run Credit Suisse's leveraged finance division, which funded the construction of a number of prominent Las Vegas casinos.

“DLJ has been interested in gaming for some time,” he says. “We like the characteristics of it from an investment stand point.”

The investor group paid approximately $770 million (€1 billion) for the casino, with DLJ chipping in $115 million, two-thirds of the total equity. DLJ is also funding the expansion plans for the casino at a cost of around $150 million. The firms have secured two loans for the property: a $760 million facility for the acquisition and renovation of the Hard Rock and $600 million for expansion.

Much of the attraction for DLJ seems to come from the Hard Rock brand. “Hard Rock is a phenomenal and powerful and relevant brand,” Pomroy says. “We think this is a potentially undervalued brand.”

In addition to upgrading the hotel's luxury suites and adding additional rooms, the new owners plan to improve the Hard Rock's conference space to attract more mid-week business. The group is also looking to increase the number of restaurants, bars and shops on the property.

“It's going to build on the foundation of the core Hard Rock franchise,” Pomroy adds.

The high-profile Hard Rock deal comes as private investors are increasingly looking to the gaming sector, with Texas Pacific Group and Apollo Management agreeing to a $17 billion transaction with Harrah's in late December. That same month, Colony Capital, long a player in the gaming space, offered $5 billion for Station Casinos, which owns 12 Las Vegas-area casinos.