Caesars Entertainment Corp. (CZR), the largest operator of U.S. casinos, will shutter its Showboat property in Atlantic City to reduce capacity in the East Coast gambling hub amid a persistent decline in revenue.
“We believe this is a necessary step to help stabilize our business in Atlantic City and support the viability of our remaining operations in the vicinity,” Chief Executive Officer Gary Loveman said in a statement today, announcing the casino’s closure effective Aug. 31.
Caesars, the dominant operator in the New Jersey city, with four properties including the Showboat, has struggled to service its debt and last month reported a wider loss as revenue fell. The company has sold assets, transferred properties between units, refinanced some borrowings and sold equity as part of efforts to repay loans taken on in the $30.7 billion leveraged buyout in 2008, led by Apollo Global Management LLC (APO) and TPG Capital.
Gambling revenue is declining in some of Caesars’ largest markets, such as Atlantic City and the U.S. Midwest. The city, which was overtaken by Pennsylvania as the second-biggest U.S. gambling hub in 2012, has attempted to lure more visitors to its 11 casinos, with promotions such as free stays and meals.
Loveman said last month Caesars was looking for ways to reduce capacity in Atlantic City, including closings. The company has already taken steps to cut costs, such as reducing restaurant hours, a spokesman said at the time. The company closed a property in Tunica, Mississippi, this month.
The closely held Atlantic Club, formerly the Atlantic City Hilton, shut down in January. Last week, Revel AC Inc., which owns the city’s newest casino, filed for bankruptcy court protection for the second time in two years, telling employees it may close in August if a buyer isn’t found.
Penn National Gaming Inc. (PENN) said today in a statement it withdrew plans for a casino in downtown Philadelphia, citing “the ongoing gaming saturation in the mid-Atlantic region.”
Caesars, which acquired the Showboat casino by purchasing Showboat Inc. in June 1998, didn’t give financial details of the property in today’s statement.
The company will remain the largest operator in Atlantic City and will evaluate alternative uses of the Showboat property, it said. The company’s other casinos in the resort are the Caesars, Bally’s and Harrah’s.
“The closure makes financial sense for Caesars and is a positive for the oversupplied Atlantic City market,” Alex Bumazhny, a Fitch Ratings analyst, said in a statement today.
Showboat generated $187 million in net revenue and $28 million in earnings before interest, taxes, depreciation and amortization for the 12 months ended in March, Fitch said.
Caesars could steer customers to Harrah’s, its largest resort in the city, Bumazhny said. That is “potentially a negative” for some of the company’s bondholders, he said, as Harrah’s is owned by a subsidiary called Caesars Entertainment Resort Properties, while most of Caesars’ debt is owed by another entity, Caesars Entertainment Operating Co.
The operating company’s $1.5 billion 9 percent first-lien notes due February 2020 traded at 84 cents on the dollar at 1:08 p.m. in New York, up 0.75 cent from June 26, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Caesars fell 0.3 percent to $17.67 at the close in New York. The stock is down 18 percent this year.
The company reported a first-quarter net loss of $386.4 million compared with a loss of $217.6 million a year earlier. Revenue fell 1.9 percent to $2.1 billion.
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