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Best of Howard Stutz

Gaming Guru

Howard Stutz

Caesars skips $225 million interest payment

16 December 2014

LAS VEGAS -- Caesars Entertainment Corporation made good on previous predictions and skipped a $225 million interest payment Monday while the casino operator continued debt reduction talks with lenders.

The interest payment, due on second-tier debt covering its Caesars Entertainment Operating Co., business unit, has a 30-day grace period.

Missing the payment is viewed by analysts as the first step toward taking CEOC in a prepackaged Chapter 11 bankruptcy reorganization.

CECO is the largest of the Las Vegas-based company’s divisions and controls the flagship Caesars Palace, Harrah’s Reno Casino and Hotel, Caesars Atlantic City, and several regional properties.

According to a filing with the Securities and Exchange Commission Monday, Caesars had $1.5 billion in cash as of Sept. 30.

Caesars has a gaming industry-high $22.8 billion in debt. Since September, the company has held talks with bank lenders and bond holders in attempts to restructure the debt.

In the SEC filing Monday, Caesars said the company “elected not to pay” the interest payment. In a separate SEC filing on Friday, Caesars said it “believed an oral agreement in principle had been reached between certain parties.”

Sources said a framework to a restructuring agreement includes a prepackaged bankruptcy covering CEOC — the business unit that holds more than 80 percent of the company’s overall debt — and moving the casinos controlled by CEOC into a real estate investment trust.

If the talks were to collapse before the 30-day grace period expires, Caesars could elect to make the interest payment. The company would only be in default if it does not make the payment.

Two first-lien creditors — hedge funds Perry Corp. and Silver Point Capital — bailed on the debt restructuring talks last month and Caesars said last week another creditor had withdrawn from discussions. The firms that ended the talks no longer have restrictions that prevented them from trading Caesars debt.

The current restructuring plan offers the first-lien debt holders nearly 100 percent recovery. Second-lien bondholders will get an undisclosed amount of equity in the new company. The bankruptcy filing is expected to take place in January.

However, analysts from Fitch Ratings Service believe Caesars’ financial structure is too complicated to be resolved in a prepackaged bankruptcy.

The REIT concept would split CEOC into two companies, including one to own the real estate for many of the company’s casinos. A second company would manage the properties.

Other analysts have expressed support for the REIT idea.

Caesars’ debt has been on the company’s books since 2008 when the it was taken private in a $30 billion leveraged buyout by TPG Capital and Apollo Global Management.

Caesars is now the nation’s largest casino operator, with almost 40 properties in 14 U.S. states and the Canadian province of Ontario. The company owns 10 hotel-casinos on or near the Strip.

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, Bally’s Las Vegas, Planet Hollywood Resort, Harrah’s New Orleans, a 41 percent interest in Horseshoe Baltimore and Caesars Interactive Entertainment.
Caesars skips $225 million interest payment is republished from