Caesars Entertainment Corp. is expected to miss a $224 million interest payment owed to bondholders as the company prepares to file Chapter 11 bankruptcy on its largest operating division next month.
The overdue payment plan was revealed by JP Morgan & Chase gaming analyst Susan Berliner in an overall report on the High Yield gaming outlook for next year.
Berliner said said Caesars would missed the payment covering second lien creditors that is due Monday, “which will technically count as a default.”
The analyst said the bonds would not be removed from the investment bank’s index, “but its yield and spreads will not be included, just the dollar price.”
Caesars spokesman Gary Thompson declined comment Thursday on the JP Morgan report.
The move is another step as the casino giant seeks to restructure its gaming industry-high $22.8 billion debt.
Caesars has been in debt reduction talks with banks and creditors since September. The discussions center primarily around Caesars Entertainment Operation Co., which controls about 80 percent of the overall debt and is running out of cash to meet those obligations.
Sources said a framework to a restructuring agreement has been reached, which includes a prepackaged bankruptcy covering CEOC and moving the casinos controlled by CEOC into a real estate investment trust.
In a statement Wednesday, Fitch Ratings Service gaming analyst Alex Bumazhny estimated that 80 percent of the first-lien debt would be recovered through the company’s bankruptcy plans. Less than 10 percent of the second-tier debt, however, would be recovered.
“Some form of default is imminent for CEOC regardless of whether the coupon payment is made as the company has less than a year of liquidity remaining,” Bumazhny said.
The REIT concept would split CEOC into two companies, including one to own the real estate for many of the company’s casinos, including Caesars Palace and Caesars Atlantic City. A second company would manage the properties.
Other analysts have also expressed support for the REIT idea. However, the company said in a Securities and Exchange Commission filing the REIT concept had been “superseded” by other proposals.
The current 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.
Two first-lien creditors — hedge funds Perry Corp. and Silver Point Capital — have bailed on the debt restructuring talks.
Caesars is also facing from second-lien bondholders claiming the company is in default, which the company has dismissed as “meritless.”
Caesars moved ownership of several casinos and its interactive gaming division into Caesars Growth Partners, a separate publicly traded company. Caesars Entertainment owns 58 percent of Caesars Growth Partners.
Before Thanksgiving, a creditor group led by UMB Bank — which is owed $1.25 billion — filed a lawsuit in Delaware, demanding that Caesars corporate executives be removed from control of the company.
Creditors claimed Caesars directors “thoroughly ransacked” the company, keeping the best properties within Caesars while leaving CEOC with all the liabilities. The lawsuit asks the court to appoint a receiver to run CEOC.
Caesars asked a judge to dismiss the lawsuit.
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