Caesars Entertainment Corp. (CZR), controlled by Apollo Global Management LLC and TPG Capital, will have to restructure its debt and may leave some unsecured debt holders with nothing, Moody’s Investors Service said.
The Las Vegas-based company has been transferring some of its properties from Caesars Entertainment Operating Co., which owes most of the company’s almost $23 billion in debt, to related entities in order to raise cash. Still, the company, the largest owner of casinos in the U.S., will burn through $1 billion this year and $2 billion in 2015, Peggy Holloway, a senior credit officer for Moody’s, said in a report today.
Even if Caesars used the proceeds from recent asset sales to repurchase some debt at 50 cents on the dollar, the company won’t generate enough earnings before interest, taxes, depreciation and amortization to cover remaining interest expenses and capital spending needs, Holloway said.
“Recent asset sales by Caesars’ private equity sponsors are weakening the hand that creditors will bring to the table in the casino company’s inevitable restructuring,” Holloway said, referring to Apollo and TPG. “The transactions are reducing the asset base underlying the debt, which will likely lead to deeper losses for lenders and bondholders upon a default.”
Moody’s rates Caesars’ long-term debt as Caa3, nine levels below investment grade.
Stephen Cohen, a spokesman for Caesars, declined to comment.
Caesars has been struggling under the debt load taken on in a $30.7 billion leveraged buyout led by Apollo and TPG in 2008. Since then gambling revenue has declined in some of the company’s largest markets such as Atlantic City, New Jersey, and Tunica, Mississippi.
The price of Caesars’ $3.6 billion of 10 percent, second-lien notes due 2018 decreased 0.375 cents on the dollar to 44.625 cents at 4:21 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s down from 64 cents last May and higher than the record low of 41.50 cents on March 20.
The shares, which rose 4.4 percent to $19.14 at the close in New York today, have declined 11.1 percent this year.
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