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Howard Stutz

Caesars calls latest default notice 'meritless'

25 November 2014

LAS VEGAS -- Caesars Entertainment Corporation, which has been embroiled in debt reduction talks with its lenders, said Monday one of its banks filed a notice of default against the casino operator.

In a filing with the Securities and Exchange Commission, Caesars called the default notice, “meritless.”

The company, which has $22.8 billion in long-term debt, said in a recent SEC filing that Caesars Entertainment Operation Co., which controls the largest portion of the company’s nearly 40 casino nationwide, is running out of cash.

The division, which operates Caesars Palace, Caesars Atlantic City and many of the company’s regional properties, needs to be restructured to manage its debt payment, which are roughly 80 percent of Caesars’ overall total, analysts say.

On Monday, Caesars said it received a default notice last week from UMB Bank related to its senior-secured notes covering CEOC. Caesars said it “does not believe that a default or an event of default has occurred.”

The notice covered $1.25 billion of debt, according to the SEC filing.

Last month, second-lien bondholders filed default notices against the company. The bondholders have complained because Caesars has transferred ownership of several resorts into different operating entities.

Kim Noland, director of high yield research at Gimme Credit, an independent research service on corporate bonds, said in a report Monday the first-lien bondholders “filed a notice of default based on the same asset transfers that the second lien bondholders are litigating about.”

Noland said Caesars is due to make “significant” interest payments of more than $100 million next Monday.

“The picture for creditors of CEOC becomes even more murky,” Noland said.

Shares of Caesars, traded on the Nasdaq, closed at $16.13 Monday, up 11 cents or 0.69 percent.

Caesars has been in discussions with its lenders since September. The company has said in SEC filings this month that two hedge funds abandoned the talks.

Last week, the company said one idea discussed was to place CEOC into a real estate investment trust — commonly referred to as a REIT.

Caesars said the REIT concept “has been superseded by the numerous proposals that have been, and continue to be, transmitted” as part of the ongoing talks between Caesars and its lenders. The company is reportedly planning to file a prearranged bankruptcy covering CEOC sometime in January.

Analysts, however, said Caesars’ capital structure will make bankruptcy a lengthy process.

The gaming industry has embraced REITs, which, by law, don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders.

Caesars has been exploring different ways to restructure its debt — the highest in the gaming industry — for more than 18 months.

Caesars’ other major operating division is Caesars Growth Partners, which is publicly traded on Nasdaq as Caesars Acquisition Co. The business, 58 percent owned by Caesars Entertainment, includes The Cromwell, The Linq Hotel & Casino, Bally’s - Las Vegas, Planet Hollywood Resort & Casino, Harrah’s New Orleans Casino, a 41 percent interest in The Horseshoe Casino Baltimore and Caesars Interactive Entertainment.
Caesars calls latest default notice 'meritless' is republished from