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\tFrom an article published on March 8, 2014<\/p>\n
\tBy HOWARD STUTZ
\n\tLAS VEGAS REVIEW-JOURNAL
\n\tNothing is simple when it comes to Caesars Entertainment Corp.<\/p>\n
\tTake last week\u2019s announcement that the company is selling four casinos to its Caesars Growth Partners subsidiary for $2.2 billion.<\/p>\n
\tSome analysts worried the deal would diminish the parent company\u2019s results. Caesars is giving up valuable revenue and cash flow from three Strip casinos and Harrah\u2019s New Orleans to a subsidiary in exchange for cash.<\/p>\n
\tCaesars Growth Partners was created in 2013 to help repair the company\u2019s balance sheet and deal with an industry-high $23 billion in long-term debt.<\/p>\n
\tHowever, the question remains: Will Caesars do what is required to alleviate the much-criticized debt?<\/p>\n
\tDeutsche Bank gaming analyst Andrew Zarnett, who specializes in high-yield securities, said Caesars\u2019 management needs to focus on $3.06 billion of the debt coming due in 2015 and 2016.<\/p>\n
\tHe doubts that will happen.<\/p>\n
\tIn 2012, Caesars reinvested proceeds from its $610 million sale of Harrah\u2019s St. Louis to Penn National Gaming in its casino properties instead of paying down debt.<\/p>\n
\t\u201cGiven Caesars\u2019 current performance and the status of capital markets, we believe that the company has very limited ability to refinance these maturities with like securities,\u201d Zarnett told investors.<\/p>\n
\tThe four casinos \u2014 Harrah\u2019s New Orleans, Bally\u2019s Las Vegas, The Quad and The Cromwell, which opens in May \u2014 will join Planet Hollywood Resort, the under-construction Horseshoe Baltimore, the Octavius Tower at Caesars Palace and the company\u2019s interactive gaming division under the Caesars Growth Partners umbrella when the deal closes by early summer.<\/p>\n
\tMitch Garber is CEO of Caesars Interactive and of Caesars Growth Partners.<\/p>\n
\tCasino management won\u2019t change. A shared-services joint venture will provide operating services to all of Caesars subsidiaries.<\/p>\n
\tWall Street has often looked harshly at Caesars\u2019 balance-sheet maneuvers since 2008, when the company was taken private and saddled with debt in a $30.7 billion buyout.<\/p>\n
\tFitch Ratings Service gaming analyst Alex Bumazhny wasn\u2019t upbeat about the latest transaction.<\/p>\n
\tHe told investors Caesars Entertainment has \u201can already weak free cash flow profile,\u201d and said the transaction is a negative to creditors that further deteriorates some recovery prospects in event of default.<\/p>\n
\t\u201c(It) reflects another step toward moving assets away from the weaker Caesars Entertainment into healthier entities,\u201d Bumazhny said.<\/p>\n
\tHe added the move isolates the properties and the lucrative interactive business from a potential bankruptcy restructuring.<\/p>\n
\tThere\u2019s that ugly \u201cb\u201d word again.<\/p>\n
\tCaesars Chairman and CEO Gary Loveman is adamant that the company will not file a Chapter 11 bankruptcy reorganization.<\/p>\n
\tIn a lengthy interview in November, Loveman acknowledged the company had \u201ca very complicated capital structure,\u201d but had taken several refinancing steps in the past year that gave the business $2 billion in cash on its balance sheet.<\/p>\n
\tThe most significant debt maturities don\u2019t come due for another four years.<\/p>\n
\t\u201cWe\u2019re much better structured,\u201d Loveman said. \u201cThere is nothing that would trigger a liquidity crisis. We don\u2019t have anything like that.\u201d<\/p>\n
\tLoveman last week called the casino sales \u201can important step\u201d to repair the company\u2019s balance sheet. During a conference call to discuss the transaction, Loveman told analysts that Caesars Growth Partners is focused on what its name says \u2014 growth.<\/p>\n
\tThe Cromwell is a $185 million make-over of Bill\u2019s Gamblin\u2019 Hall. The Quad (formerly the Imperial Palace) will benefit when Caesars Growth Partners spends $223 million to upgrade the hotel\u2019s 2,550 rooms.<\/p>\n
\tGarber said both properties will offer rooms at a much higher nightly rate than in their previous lives.<\/p>\n
\tCaesars Growth Partners is structured to make capital investments. Caesars Entertainment owns 58 percent of the entity, which is managed by Nasdaq-traded Caesars Acquisition.<\/p>\n
\tCaesars\u2019 private equity owners, TPG and Apollo Management Group, each put $500 million into Caesars Growth Partners. High-profile investors bought in, including hedge fund billionaire John Paulson, who owns 12 million shares. Soros Fund Management, the investment arm of billionaire George Soros, a high-profile supporter of liberal and progressive political causes, owns 6 million shares.<\/p>\n
\tLoveman said Caesars Growth Partners properties will benefit from \u201csignificant capital investment to fulfill their potential.\u201d That\u2019s what the company was structured to do.<\/p>\n
\tIt was also structured to not live long. Caesars holds an option to buy back outstanding shares in three years.<\/p>\n
\tZarnett said last week\u2019s move buys Caesars Entertainment management \u201cadditional time\u201d to solve its high-leverage issues, based on the $1.8 billion it will net from the transaction. He said the company \u201cremains focused\u201d on addressing near-term maturities, rather than debt due in a few years.<\/p>\n
\t\u201cThis transaction is clearly negative from a leverage perspective on Caesars Entertainment due to the loss of (cash flow) from the sale of the three assets,\u201d Zarnett said. \u201cA significant amount of debt reduction would be needed to offset the loss of (cash flow) to maintain neutral leverage.\u201d<\/p>\n
\tCaesars will announce quarterly and year-end results Tuesday. The company said it expects to report fourth-quarter revenue of $2.05 billion to $2.11 billion and a net loss of $1.7 billion to $1.82 billion<\/p>\n
\tWe won\u2019t know for a while whether Caesars is just realigning the deck chairs on the Titanic<\/p>\n
No replies were posted for this topic.<\/p>\n","protected":false},"excerpt":{"rendered":"
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