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S&P lowers corporate credit ratings on Caesars, cites outlook as 'negative'

9 April 2014

Standard & Poor’s rating services lowered its corporate credit ratings on Caesars Entertainment Corp., painting a dire picture for the casino company that carries a gaming industry-high $23 billion in long-term debt.

In a statement Tuesday, Standard &Poor’s credit analyst Melissa Long said the company’s outlook was “negative,” adding Caesars’ planned sale of four casinos to its affiliate, Caesars Growth Partners, will not help the company get out from under its debt load.

Also, Long said she does not expect Caesars will have “sufficient liquidity” to meet its debt obligations of about $3.5 billion that mature in 2015.

“The downgrade reflects our expectation that Caesars’ capital structure is unsustainable,” Long said. “The amount of cash the company will burn in 2014 and 2015 creates conditions under which we believe a restructuring of some form is increasingly likely over the near term, absent an unanticipated significantly favorable change in operating performance.”

A spokesman for Caesars declined comment.

Standard &Poor’s released its downgrade in the morning, but shares of Caesars closed up 52 cents, or 3.02 percent, on Nasdaq to end the day at $17.75.

The ratings decline comes after two separate groups of Caesars bondholders and lenders said they want to unravel the deals used to create Caesars Growth Partners. Caesars reported the actions in recent filings with the Securities and Exchange Commission.

The company said undoing Caesars Growth Partners “could trigger a default” of the affiliate’s debt.

Caesars Entertainment owns 58 percent of Caesars Growth Partners, which was created to help repair the company’s balance sheet.

Standard &Poor’s said the transfer of assets to Caesars Growth Partners, “will not be fully offset by debt repayment even assuming all proceeds are used for debt reduction.”

Caesars Growth Partners owns Planet Hollywood Resort, the under-construction Horseshoe Baltimore, a hotel tower at Caesars Palace and the company’s interactive gaming business, which includes its online gaming operations in Nevada and New Jersey and the World Series of Poker.

In February, Caesars Entertainment announced plans to sell Bally’s Las Vegas, The Quad, The Cromwell and Harrah’s New Orleans to Caesars Growth Partners in a $2.2 billion transaction. Caesars Entertainment said it would use proceeds from the sale to pay down debt.

Standard &Poor’s called the sale of the casinos to Caesars Growth Partners, “a leveraging event for Caesars because it is selling these assets at a lower aggregate multiple than its current total debt leverage.”

Long said that “the recovery prospects are lower for lenders” as a result.

“We think this increases the likelihood that Caesars will pursue an exchange offer over the near term,” Long said.
S&P lowers corporate credit ratings on Caesars, cites outlook as 'negative' is republished from