Moody’s warns Caesars’ debt burden may ‘weaken competitive position’

Investors in Caesars Entertainment Corp. were warned Wednesday the casino operator is not out of the woods financially despite companywide cost-cutting measures.

In an analysis report on the Las Vegas-based casino operator, Moody's Investors Service said Caesars, which operates 10 Strip-area casinos, including Caesars Palace, Rio, Harrah's and Bally's, doesn't have any significant long-term debt coming due until 2015.

However, the company's debt of more than $23 billion "is eating its cash and may weaken its competitive position."

Caesars, which had been known as Harrah's Entertainment, became privately held in a 2008 private equity buyout valued at $29 billion. The company does have publicly held debt and attempted to list some shares publicly last year before abandoning the plan.

"Caesars' significant debt-service burden leaves the company with insufficient free cash flow for maintenance of existing assets," Moody's analyst Peggy Holloway said in a report. "We believe this makes Caesars properties prone to market share loss over the intermediate term."

But Caesars spokesman Gary Thompson said company officials disagreed with some of the findings by Moody's. He said Moody's didn't take into account the cuts in operating costs and the changes to the company's interest payment schedule that have freed up funds for investment.

Thompson said Caesars is moving forward on completing the 660-room Octavius Tower at Caesars Palace, which would give the resort more than 4,000 hotel rooms, and Project Linq, a retail, dining and entertainment corridor on the Strip.

Caesars is also partners in a Ohio joint venture that is developing hotel-casinos in Cincinnati and Cleveland.

"The report did not include the funds that we have been able to put into development opportunities for the company that provided new revenues," Thompson said.

Moody's issued the report on Caesars a day after the investors service said Nevada's slow recovery in gaming revenues could collapse even if there is a minor hiccup in the national economy.

Moody's highlighted comments from the Federal Reserve concerning a slowdown in consumer spending and continued high unemployment that raise red flags for the local gaming industry.

Caesars stood apart from the rest of the casino industry because of the company's expansive debt, which is the largest of any gaming company. MGM Resorts International is the next highest with about $12 billion in long-term debt while Las Vegas Sands Corp. has about $10 billion in debt.

Moody's said Caesars' cost-cutting reductions provided a bit of a lift, but cutbacks and a rebound in gaming revenues may not be enough to solve the company's problems.

"Caesars also is pinning its hopes on a recovery in gaming demand to jump-start same-store sales and strong returns on debt-financed growth spending." Holloway wrote. "In our view, the company is more focused on growth initiatives than debt reduction. We don't believe earnings growth alone will be enough over the next few years to improve leverage and coverage metrics to solid footing."

Caesars has $12 billion of debt maturing in 2015.

Moody's said a restructuring of the company's debt may be in the future. Caesars is considered the world's largest gaming company with more than 50 casinos worldwide. The company also operates the World Series of Poker.

"This is a long liquidity runway, but we don't think it solves Caesars' leverage problems," Holloway said. "Caesars will eventually need to reduce its debt by selling assets, going public or restructuring its debt burden."

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