Caesars will talk with bank creditors to address debt

Caesars Entertainment Corp. said Friday it would begin talks with bank creditors to rework part of its $24.2 billion debt.

The move follows a similar announcement last month in which the Las Vegas-based coasino operator said it was in discussions with its senior bond holders in efforts to restructure the largest portions of what has become the highest debt in the gaming industry.

The announcement was viewed positively by stockholders, who are hopeful a settlement at the negotiating table between Caesars and its creditors would keep the company out of bankruptcy court.

Shares of Caesars, traded on Nasdaq, closed at $11.71 Friday, up $1.32, or 12.7 percent.

One analyst, however, believes Caesars — which operates more than 50 casinos in the United States, including nine on or near the Strip — still will have to go through a bankruptcy court-monitored reorganization to fix the company’s balance sheet.

Fitch Ratings Service gaming analyst Alex Bumazhny said earlier this year Caesars’ debt was “unsustainable.”

In a phone interview from New York on Friday, Bumazhny said “it was likely” that the company would have to resolve its issues through bankruptcy.

He said “there were too many stakeholders” involved for the talks to be successful.

“The forces are not seeing eye-to-eye,” Bumazhny said. “We just don’t see how this gets resolved.”

He said the company is “burning through $1 billion a year in cash flow.”

MAKING PROGRESS

In a statement Friday, Caesars Chairman Gary Loveman said the talks with the banks could “create a path toward a sustainable capital structure” for the company.

Caesars said it “executed nondisclosure agreements” with the banks.

Loveman told the Las Vegas Review-Journal in September the company “had made progress” with its unsecured creditors and talks with the first lien holders “was an important step” in moving forward with healing the company’s balance sheet.

In a Thursday filing with the Securities and Exchange Commission, Caesars said it amended a debt document so senior bondholders would get a lien on the casino operator’s cash.

“These steps are just part of a long march to a likely late-in-the-year restructuring announcement,” KDP Investment Advisors gaming analyst Barbara Cappaert said. “It appears that first lien creditors are the focus of the discussions for now.”

Chris Snow, a New York-based analyst at researcher CreditSights Inc., told Bloomberg News a transfer of assets, including a pledge on cash, would have to be done at least 90 days before a Chapter 11 filing.

“The first-lien lenders want to protect themselves in bankruptcy,” Snow told Bloomberg News.

Earlier this month, Caesars said it received a notice of default from a group of second-lien holders covering $3.7 billion of the company’s debt. The company said it was “reviewing the notice.”

SECOND NOTICE OF DEFAULT

On Friday, Caesars said in an SEC filing that it received a second notice of default from bond holders claiming to own 30 percent of another portion of the company’s debt.

Bumazhny believes there were too many differences between the first- and second-lien bond holders and the company to resolve the balance sheet issues.

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. The company recently raised $1.75 billion in new debt associated with 2015 debt retirement, as well paying down $800 million of debt due in 2016.

The company also installed new management into Caesars Entertainment Operation Co., or CEOC, which operates 44 casino properties in 13 states — the largest chunk of the company’s operating divisions. CEOC owns Caesars Palace, Caesars Atlantic City, Harrah’s Reno and many of the company’s regional properties.

Casinos and properties held under CEOC owe roughly 80 percent of the company’s overall debt.

Caesars’ other major operating division is Caesars Growth Partners, which is publicly traded on the Nasdaq as Caesars Acquisition Co. The business, which is 57 percent owned by Caesars Entertainment, includes The Cromwell, The Quad, Bally’s Las Vegas, Planet Hollywood, Harrah’s New Orleans, a 41 percent interest in Horseshoe Baltimore and Caesars Interactive Entertainment.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.

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