Caesar’s Entertainment Corporation (CZR) , the largest owner of casinos in the US, is currently facing more than $20 billion of debt obligations and reported a 2Q loss nearly double the company’s loss in the year-ago period. The most recent earnings report set Caesar’s back $466.4 million at $3.24 per share, compared with $212.2 million last year at $1.69 per share.
In an ongoing attempt to revive the sinking casino colossus, Caesar’s has announced it is placing greater focus on grooming its subsidiary, Caesar’s Entertainment Operating Co. (CEOC) for a potential independent stock listing. The struggling parent company’s goal is to reduce CEOC’s debt, effectively deleveraging it for an attractive IPO.
There is a large conglomerate of Caesar’s-affiliated companies, each involved in and created to help refinance its parent company’s debt. CEOC operates as Caesar’s entertainment service provider and manages 44 gaming and resort properties in 13 US states and five countries.
Caesar’s Growth Partners LLC was created in 2013 to aid in debt reduction, buying underperforming resort properties and managing the company’s online gambling operations. Also formed in 2013, Caesar’s Acquisition Co. ($CACQ) opened another avenue for Caesar’s to sell its non-core properties, and earned Caesar’s Entertainment $1.17 billion in rights offerings to shareholders.
Debt Reduction of $548 Million in the Works
The gambling giant’s most recent efforts have led to an agreement with bondholders in which Caesar’s will purchase $89.4 million of creditors’ 6.5% notes due in 2016 and $66 million of its 5.75% debt due in 2017. $77.7 million of the payments will be made in cash, while Caesar’s Entertainment has agreed to contribute no less than $393 million of its own notes to CEOC to be canceled.
If the company doesn’t effectively restructure CEOC within 18 months, it has agreed to shell out $35 million to CEOC and its creditors. Once completed, the transaction will cut interest expense by $34 million annually.
Caesar’s has been struggling to repay its debts following a 2008 leveraged buyout worth $30.7 billion by Apollo Global Management LLC (APO) and TPG Capital. Stock has been steeply declining since mid-March, following a brief pickup that came with news of extensive casino and resort sales.
At its highest year-to-date stock price of $26.47 on May 7, Caesar’s announced it would sell four properties to affiliate Caesar’s Growth Partners LLC, freeing $2.2 billion in cash. At the time of sale, Caesar’s faced $24.5 billion in debt. Since the buyout, Caesar’s has been entangled in multiple lawsuits with creditors over increasing debt due to interest expenses that exceed its cash flow.
Caesar’s continuing debt restructuring plan places its subsidiary in the spotlight, and has focused on freeing CEOC’s credit facility. The parent company saw a brief 14% upswing in early May after announcing a comprehensive financing plan intended to promote its operating company as a viable independent stock.
To advance toward its goals, Caesar’s raised $1.75 billion of first lien debt to redeem all of CEOC’s 2015 maturities and repay the subsidiary’s bank debt and unloaded its 5% stake in CEOC to institutional investors, freeing $23 billion in Caesar’s debt. It also sold CEOC’s three Las Vegas properties to Caesars Growth Partners, the same affiliate that purchased the four properties from Caesar’s in March.
Lowered gambling turnout over the past two quarters has not helped Caesar’s recover. Atlantic City, N.J. and Tunica, Miss. represent Caesar’s Entertainment’s largest markets, but both cities have reported declining gambling revenues, exposing a wider domestic trend of softness in the gaming market. As of midday Aug. 12, Apollo Management and Caesar’s Acquisition Co. were reporting losses of 1.71% and 1.52%, respectively.
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