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Gaming Guru

Howard Stutz

Caesars Entertainment gets mixed reviews from Fitch Ratings

8 December 2010

LAS VEGAS, Nevada -- Fitch Ratings service offered a mixed view of Caesars Entertainment's capital structure, calling the Las Vegas-based casino operator "highly leveraged" but also having a "solid liquidity position."

Fitch analysts said Caesars, which changed its name from Harrah's Entertainment last month, had a "weak free cash flow profile, deteriorating asset quality, a limited organic growth profile, and a poor near-term market exposure profile."

However, Fitch analyst Michael Paladino said the company, which was taken private in a $29 billion buyout by private equity firm Texas Pacific Group and Apollo Management Group in January 2008, has taken steps to extend out maturity dates and repurchase portions of its debt.

Fitch applied a series of ratings to the debt covering several of Caesars' various subsidiaries. The company, which operates 10 Strip casinos as well as 53 properties in six countries and the World Series of Poker, overall had a stable outlook.

Fitch noted that Caesars' debt, which was $25 billion at the time of the buyout, had been reduced to $23 billion as of Sept. 30.

A hedge fund controlled by New York billionaire John Paulson completed a debt-for-equity exchange with Caesars in November, which Fitch estimates will eliminate another $1.1 billion in debt from the company's balance sheet.

"Since the leveraged buyout, the company opportunistically completed debt exchanges when bond prices were at distressed levels and aggressively negotiated and executed significant discounted debt repurchases from junior lenders," Paladino wrote in the report. "However, the balance sheet remains highly levered."

In its report, Fitch recognized that Caesars had a "solid liquidity position, minimal near-term debt maturities, an industry-leading U.S. business profile, and a solid track record of acquiring and disposing of gaming assets."

Last month, Caesars canceled a $610 million stock sale that would have been used to fund development projects in Ohio and complete a 660-room hotel tower at Caesars Palace. Paulson & Co. is still considering a stock sale of its holdings being acquired in the debt for equity exchange.

Paladino said the rating service took into account Caesars' strategy of growing the company's capital structure and seeking to benefit from a potential recovery in Las Vegas and other markets, instead of pursuing near-term debt reduction.

The stock sale, which would have listed 31.25 million shares or 9.3 percent of the company, was termed as "small" by the ratings service.

"Given the company's minimal debt maturities until 2015 and solid liquidity position of $2.4 billion, it is reasonable for (Texas Pacific and Apollo) to explore this strategy," Paladino said.

Fitch said the company had "limited" growth prospects, but would benefit greatly if Internet poker is legalized in the United States. The company has an interactive gaming division, which operates the World Series of Poker.

"If legalization in the U.S. occurred, it would likely help Caesars' ability to execute an IPO at a more desirable price, which would strengthen the consolidated credit profile," Paladino wrote.
Caesars Entertainment gets mixed reviews from Fitch Ratings is republished from