Given that Octavius tower is one of Caesars’ newest assets, we’re a bit taken aback that it would already require room upgrades. But, to your question …
There’s an old adage that when you owe the bank a thousand dollars you’re in trouble but when you owe a million dollars it’s the bank that’s in trouble. It’s much the same with Caesars Entertainment. Its owners, Texas Pacific Group and Apollo Management Group, booby-trapped the company with so much debt that a default would be catastrophic to their lenders, not just to Caesars. Consequently, Caesars has become "too big to fail," as it keeps restructuring its debt and pushing out maturities into the distant future.
But that doesn’t mean Caesars is out of the woods. "Reports of a possible Caesars bankruptcy have been heating up since April, when Moody's downgraded the company's credit rating to one of its lowest levels. Cash flow growth has not expanded for Caesars in 2013 as a result of a demand drop fueled by customers spending less at casinos," writes Seeking Alpha analyst Hunter Orr. "If the company cannot spur major cash flow generation over the course of the next year, [it] will be facing some major problems in early 2015."
Part of the problem is that Caesars’ revenues are declining, down 15.5% in Las Vegas and 8% in Atlantic City. In order to expand into new markets, Caesars has sold its casino in St. Louis and is instead a minority partner and manager in casinos in Cleveland and Cincinnati. So far, they are not beginning to cover what was lost by forfeiting St. Louis. The company also lost out on a bid to develop a casino-resort in Inchon, South Korea.
"At some point, the banks will stop lending and want to be repaid," writes Orr. He pegs early 2015 as the moment of truth, noting that Caesars’ cash flow is declining towards zero. Noting that the company is generating negative return on investment, he predicts cost-cutting measures.
"I think it’s a very good question," adds Sal Scheri, casino analyst for WhiteSand Consulting. "[But] I can’t answer that. I don’t know! I would imagine that the assets Caesars has would cover their debt … [but] you would certainly have to scratch your head. But [CEO Gary] Loveman’s a smart guy and maybe he’s got some plan to turn this around."
Regarding the new loans, Scheri theorizes that the Linq, Gansevoort, and Vegas High Roller (among other, newer assets) may be pledged against them as collateral, helping lenders move to the head of the repayment queue: "Perhaps the transaction is going to be separate and apart" from that $23.5 billion overhang. Another school of thought holds that Caesars’ asset base – which continues to depreciate -- is so far from covering the debt burden that Wall Street has decided to hang in there until such time as the company’s fortunes improve.
