Caesars Falls After Selling $148 Million in Stock
Caesars Entertainment Corp. (CZR) fell 7.4 percent to its lowest price since December after the casino operator said it will offer 7 million common shares, worth about $147.6 million at yesterday’s prices.
The shares declined to $19.52 at the close in New York, the lowest since Dec. 10. The stock has tumbled 25 percent this month.
The offering underscores the challenges facing Caesars, which has been restructuring more than $23 billion in debt and doesn’t generate enough cash to cover its expenses. The Las Vegas-based company, controlled by Apollo Global Management LLC (APO) and TPG Capital, this week said it will close a casino in Tunica, Mississippi, because of declining revenue. On the Las Vegas Strip, where the company has been investing in its properties, gambling revenue fell 20 percent last month.
Caesars, the largest owner of casinos in the U.S., granted its banker the option to sell another 1.05 million shares, according to a statement yesterday. Apollo and TPG have agreed not to sell any of their holdings for about 60 days after the offering. Citigroup Inc. (C) is the sole underwriter.
The company has struggled to repair its balance sheet after a $30.7 billion leveraged buyout in 2008. Caesars has sold stock to the public, divested assets, bought back debt and restructured loans.
The sale of 7 million shares would increase the number outstanding by 5.1 percent to 144.2 million, according to company filings. While the share offering dilutes equity investors, some bonds rose.
Caesars Entertainment Operating Co.’s $1.5 billion of 9 percent notes due 2020 rose 0.3 cent to 89.8 cents on the dollar at 3:51 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the highest level since March 13. Its $3.3 billion of 10 percent notes due in 2018 fell 0.3 cent to 44 cents on the dollar, to yield 35 percent.
The company said this week that an affiliate, Caesars Growth Partners, is seeking to raise $2 billion in debt to finance a deal to purchase four casinos from Caesars Entertainment Operating Co., the company’s most-heavily indebted unit. Caesars also said it received a letter from a law firm representing some debt holders challenging that and other asset transfers.
The casino operator said March 26 that it would close its Harrah’s Tunica casino in Mississippi in the face of increased regional competition and declining revenue.
Industrywide gambling revenue on the Las Vegas Strip fell by one-fifth to $556 million in February, according to data released today by the Nevada Gaming Control Board.
February 2013 was a record win for the Strip, making it difficult to top this year, Michael Lawton, a senior research analyst at the board, said in an interview. Many baccarat players may have chosen to celebrate the Western New Year rather than Chinese New Year, which fell on Jan. 31 this year, he said.
Contracts protecting against the company’s default for five years decreased 0.9 percentage point to 58.5 percent upfront as of 2:49 p.m. in New York, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s in addition to 5 percent a year, meaning it would cost $5.85 million initially and $500,000 annually to protect $10 million of Caesars’ debt.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The contracts, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decline as investor confidence improves and rise as it deteriorates.
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