Caesars Set for Distressed Debt Exchange, CreditSights Says
Caesars Entertainment Corp. (CZR), the casino operator with more than $24 billion in debt, will probably need to coerce bondholders to exchange their holdings for new securities to cut its borrowing costs and avoid bankruptcy, according to researcher CreditSights Inc.
The owner of Caesars Palace and Harrah’s Las Vegas, which hasn’t had a profitable quarter since at least 2010, may seek to swap a portion of its operating unit’s second-lien debt for payment-in-kind, or PIK, securities, analysts led by Chris Snow wrote today in a report. PIK notes allow borrowers the ability to pay interest with additional debt.
“Our base case is that an exchange occurs, which will free up cash flow” and “stabilize the bleed,” the analysts wrote. “An inability to execute an exchange will potentially increase the odds of a filing.”
The largest owner of casinos in the U.S. said yesterday that its net loss widened to $761.4 million after the company wrote down properties in Atlantic City and gambling revenue shrank. Caesars is burning through cash almost six years after Apollo Global Management LLC (APO) and TPG Capital took the company private in 2008. It sold shares to the public in February 2012.
Caesars Entertainment Operating Co.’s $3.3 billion of 10 percent, second-lien bonds due 2018 traded at 50 cents on the dollar to yield 29.5 percent at 1:55 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes have plunged from 70.5 cents in January.
“We have made considerable progress in improving our capital structure in recent months” including refinancing mortgage debt and issuing new equity, Gary Thompson, a spokesman for Las Vegas-based Caesars, said in an e-mail. “We are constantly exploring additional opportunities to further strengthen the company’s balance sheet.”
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