Caesars Entertainment Corp. (CZR) bonds fell after Fitch Ratings said the casino company, struggling with $23.5 billion in debt, may seek to limit bondholder claims on some assets to obtain better terms in a debt restructuring.
Caesars Entertainment Operating Co.’s $3.3 billion of 10 percent second-lien notes maturing in December 2018 fell 2 cents on the dollar to 48 cents yesterday, lifting the yield to 30.84 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes have plunged from 70.5 cents in January.
The casino company may seek to take away guarantees associated with $5.5 billion of second-lien debt at the Caesars Entertainment Operating unit, Fitch said today in a note. Eliminating the guarantees, which give investors a claim on the parent company’s assets, would weaken the second-lien holders’ negotiating power in a restructuring, Fitch analysts said.
Caesars Entertainment Operating owns most of the company’s casinos. Caesars will probably repay some debt and ask creditors to surrender claims to its other assets, which include the properties not owned by the division and an online gambling unit, Fitch said. Second-lien holders may be powerless to stop the change and also stand to get little if Caesars files for bankruptcy, the rating firm said.
“The second liens could get zero,” Alex Bumazhny, a Fitch analyst, said in a telephone interview.
Stephen Cohen, a Caesars spokesman, declined to comment on the Fitch report.
The casino company would be able to eliminate $570 million a year in interest and avoid bankruptcy by exchanging the second-lien Caesars Entertainment Operating debt for stock, Fitch said.
“If they’re able to exchange the second-lien debt for equity, then you’re left with a financially stronger entity,” Michael Paladino, another Fitch analyst, said in a telephone interview. “The question we were trying to answer is, Is it possible the guarantee is going away for the second-lien holders? There’s a lot of legal interpretation around the nuances of having the guarantee fall.”
Fitch issued the report in response to “widespread speculation” among investors that the Las Vegas-based company will attempt to exchange debt for equity next year. The interest savings roughly equal the projected 2015 cash outflow at the subsidiary, Fitch said.
Caesars, the largest owner of casinos in the U.S., amassed its debt in a 2008 leveraged buyout led by Apollo Global Management LLC (APO) and TPG Capital. The two firms have been restructuring the company’s balance sheet ever since, including selling stock to raise money and exchanging mortgage-backed securities for longer-term debt.
The company distributed rights to shareholders allowing them to purchase stock in Caesars Acquisition Co., which will hold a stake in two casinos and the online gambling business.
Apollo and TPG have said they plan to purchase $600 million of shares in the new venture. That transaction is expected to close on Nov. 18.
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