\n(Bloomberg) \u2014 Yields on bonds from a Caesars Entertainment Corp. unit are diverging in a sign that the casino company will be unable to satisfy warring creditor classes and increase the odds of a bankruptcy.<\/p>\n
\t\u201cIt\u2019s difficult to understand how a workout would take place and bind classes outside of bankruptcy,\u201d said Janegail Orringer, a credit analyst who follows casino bonds at AllianceBernstein Holding LP, which manages $486 billion. \u201cI don\u2019t assign a high likelihood of success to an out-of-court outcome,\u201d she said by telephone.<\/p>\n
\tWhile the company has enough assets to mollify its most senior creditors and has already come to an arrangement with unsecured bondholders, there isn\u2019t likely to be enough left for middle-ranking lenders, according to Chris Snow, an analyst at debt-research firm CreditSights Inc. The difference in yields between its first-lien notes due in June 2017 and its second- lien securities maturing in December 2018 has widened to 43 percentage points from 26 points on June 30, before creditor talks began.<\/p>\n
\tThose bonds are obligations of Caesars Entertainment Operating Corp., the division that owns most of the parent\u2019s casinos and which will run out of cash by early 2016, according to reports from Goldman Sachs Group Inc. and JPMorgan Chase & Co. Its first-lien creditors would benefit from a speedy restructuring of its $18.3 billion of debt, while second-lien bondholders would do better to keep getting interest payments on notes that yield as much as 65 percent and are likely to receive little in a bankruptcy.<\/p>\n
\tApollo, TPG<\/p>\n
\tThe parent company, loaded with debt by Apollo Global Management LLC and TPG Capital in a $30.7 billion deal at the peak of the last takeover boom in 2008, is talking with senior creditors of the operating unit to craft a restructuring plan that reduces borrowings and curbs $2.15 billion in annual interest expense, four people with knowledge of the matter, who asked not to be identified because the discussions are private, said last week.<\/p>\n
\tGary Thompson, a spokesman for Las Vegas-based Caesars, Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc. and Lisa Baker, a TPG spokeswoman at Owen Blicksilver Inc., declined to comment.<\/p>\n
\t\u2018Cram Down\u2019<\/p>\n
\tCaesars\u2019 Chief Executive Officer Gary Loveman said in a Sept. 12 statement that the company was \u201ccommitted to working constructively with creditors to deleverage\u201d its most indebted unit \u201cand create a path toward a sustainable capital structure.\u201d<\/p>\n
\tOnce it reaches an accord with its first-lien creditors, Caesars may pressure second-lien bondholders to accept a distressed exchange, CreditSights\u2019s Snow said by telephone from New York. \u201cIf they can get the first-lien creditor group on their side, it might enhance their ability to cram down the seconds,\u201d he said.<\/p>\n
\tIn a distressed-debt exchange, borrowers offer to swap their outstanding securities for obligations that are in some way inferior. Investors who agree to the exchange believe they will receive a better return than if the company filed for bankruptcy.<\/p>\n
\tCreditor Conflicts<\/p>\n
\tEven if Caesars is successful in obtaining approval for a debt-cutting proposal from the creditors who\u2019ve engaged in private talks, it will have to convince a wider pool to accept the deal. Some debtholders who have purchased credit-default swaps that would profit from a bankruptcy and others with multiple classes of Caesars securities may be unwilling to sign on to a restructuring that helps some of their holdings at the expense of others.<\/p>\n
\tInvestors in the parent company\u2019s stock that also own the operating unit\u2019s second-lien bonds, for example, might see their equity positions benefit while their bonds decline from a deleveraging transaction.<\/p>\n
\tA Caesars bankruptcy would trigger settlements of $27.8 billion of credit-default swaps contracts that are used by hedge funds, banks and other investors to hedge against losses or wager on the company\u2019s creditworthiness, according to Depository Trust & Clearing Corp. data as of Sept. 19. Even after accounting for contracts that offset each other, swaps traders would be on the hook for as much as $1.96 billion in payouts on the derivatives. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.<\/p>\n
\tCaesars Palace<\/p>\n
\tThe cost of protecting against a default through March 2015 has surged this week to 43.6 percent upfront, from 13 percent on Sept. 19, according to data provider CMA. That means it would cost $4.36 million to protect $10 million of Caesars obligations.<\/p>\n
\tThe operating company, which owns 22 U.S. gaming properties from the flagship Caesars Palace Las Vegas to Horseshoe Tunica in Mississippi, has lost money since 2009, according to regulatory filings and data compiled by Bloomberg. Its net loss for the 12 months through June 30 was $3.29 billion, wider than the full year deficit of $2.99 billion in 2013.<\/p>\n
\tProperties owned by the operating company generated 6.5 percent less revenue in the year ended June 30 than the $6.3 billion collected in 2013 as casino revenue dropped, according to regulatory filings.<\/p>\n
\t\u2018We\u2019re Skeptical\u2019<\/p>\n
\tSales at the parent company fell to $8.56 billion last year from $10.1 billion in 2008. It\u2019s been unprofitable every year since 2009, with losses forecast for 2014 and 2015 in a Bloomberg analysts survey.<\/p>\n
\tThrough other units, the parent controls casinos including the Paris and Flamingo in Las Vegas as well as online gaming assets like the World Series of Poker and Slotomania.<\/p>\n
\tMoody\u2019s Investors Service rates the operating company\u2019s debt Caa3 with a negative outlook, a rating that indicates \u201cvery weak creditworthiness relative to other domestic issuers.\u201d Standard & Poor\u2019s rates the company an equivalent CCC-.<\/p>\n
\t\u201cIn a sense, it\u2019s a tug-of-war,\u201d Snow said. \u201cEven if you get one constituent on board with the plan, we\u2019re skeptical you can come up with a scheme that is satisfactory with all the parties.\u201d<\/p>\n
\t\u2013With assistance from Christopher Palmeri in Los Angeles.<\/p>\n
No replies were posted for this topic.<\/p>\n","protected":false},"excerpt":{"rendered":"
(Bloomberg) \u2014 Yields on bonds from a Caesars Entertainment Corp. unit are diverging in a sign that the casino company will be unable to satisfy warring creditor classes and increase the odds of a bankruptcy. \u201cIt\u2019s difficult to understand how…<\/p>\n","protected":false},"author":36,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[],"class_list":["post-8074","post","type-post","status-publish","format-standard","hentry","category-latest-casino-news"],"_links":{"self":[{"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/posts\/8074","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/comments?post=8074"}],"version-history":[{"count":0,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/posts\/8074\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/media?parent=8074"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/categories?post=8074"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumarchives.tmsites.net\/index.php\/wp-json\/wp\/v2\/tags?post=8074"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}