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Gaming Guru

Howard Stutz

Report: Prearranged bankruptcy for key Caesars unit as soon as January

12 November 2014

LAS VEGAS -- Wall Street analysts have all but written off Caesars Entertainment Corporation until the casino operator straightens out its balance sheet.

The company, which operates nine resorts on or near the Strip, is carrying almost $23 billion in debt. On Monday, Caesars said it lost $908.1 million in the third quarter.

Caesars has been in private talks with banks and lenders since September with the hopes of restructuring a portion of the debt. Bloomberg News has reported the discussions cover $18.3 billion. Caesars’ debt is the highest in the gaming industry.

Bloomberg, citing unnamed sources Tuesday, reported the company and key senior creditors reached agreement on the outline of a debt restructuring plan that includes a prearranged bankruptcy for Caesars’ largest unit as soon as January.

On Monday, Caesars Entertainment Chairman Gary Loveman declined to discuss the discussions during the company’s third-quarter conference call with analysts. But one analyst wasn’t shy in offering an opinion.

“Caesars remains a mess to analyze given what has not been disclosed at the time of the conference call,” KDP Investment Advisors analyst Barbara Cappaert wrote in a research note Tuesday. “Nonetheless, the focus by the company will be on pushing to consummate a restructuring.”

Macquarie Securities gaming analyst Chad Beynon said the only investors who should be interested in Caesars are those who specialize in debt and “special situations.”

Beynon remained neutral in his stance on the company’s stock given the “difficult” domestic operating market. Caesars operates more than 50 casinos in 13 states.

“In our view it is becoming almost impossible to assign an intrinsic valuation to Caesars without knowing what’s going on behind the curtain within all three individual entities, particularly on the debt side,” Beynon said.

Caesars said its net loss for the quarter was 19.3 percent higher than a year ago.

Caesars’ talks have been with banks and first-lien bondholders. Loveman said the company was “keenly focused on deleveraging” the balance sheet.

Several of its second-lien bondholders filed notices of default against the company in October covering $3.7 billion of the debt. Caesars, in Securities and Exchange Commission filings, said it is reviewing the notices.

“While it is premature to report on the details of these negotiations with creditors, it is fair to say that the talks have been constructive,” Loveman said.

Cappaert estimates Caesars could “run out of cash” in another two to three quarters.

“The push to restructure is certainly taking on more immediacy,” Cappaert said. “We still think the first lien debt and noteholders are in the best position to extract with the bank debt fully covered.”

Cappaert said the second lien holders “do not have much leverage at this point in the restructuring talks.”

Caesars announced an overall restructuring plan in May that eliminated more than $1 billion in debt that was due next year while providing a different ownership structure to pieces of the company. It recently raised $1.75 billion in new debt associated with 2015 debt retirement and also paid down $800 million of its debt due in 2016.

It installed new management of Caesars Entertainment Operation Co., which operates 44 casino properties in 13 states — the largest portion of the company’s operating divisions.

Caesars Entertainment Operation owns Caesars Palace, Caesars Atlantic City, Harrah’s Reno Casino and Hotel and many of the company’s regional properties.

Casinos and properties held under Caesars Entertainment Operation owe about 80 percent of the company’s overall debt.

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.

Eilers Research gaming analyst Adam Krejcik said Caesars Growth Partners may be the most valuable piece of the company. The social gaming arm of Caesars Interactive generated record revenue and cash flow during the third quarter.

“We continue to believe this asset is overlooked and largely misunderstood by the investment community,” Krejcik said.

Also on Monday, Caesars named Eric Hession as chief financial officer, replacing Donald Colvin, who is retiring Dec. 31.

Shares of Caesars closed down 40 cents or 3.47 percent to finish at $11.14. Shares of Caesars Acquisition fell 37 cents or 3.59 percent to close at $9.94. Both companies are traded on the Nasdaq.
Report: Prearranged bankruptcy for key Caesars unit as soon as January is republished from