Citing a “negative” outlook for Caesars Entertainment, bond-ratings agency Standard & Poor’s downgraded its ranking of the company yesterday. Caesars liquidity, analyst Melissa Long opined, was insufficient to meet $3.5 billion in debt maturities that come due next year, nor would sales of casino properties to subsidiary Caesars Growth Partners, raise enough cash. Wrote Long, “The downgrade reflects our expectation that Caesars’ capital structure is unsustainable. The amount of cash the company will burn in 2014 and 2015 creates conditions under which we believe a restructuring of some form is increasingly likely over the near term, absent an unanticipated significantly favorable change in operating performance.”
In hindsight, might it have been better for a post-LBO Caesars to have hunkered down and concentrated on optimizing its existing properties? CEO Gary Loveman‘s expansion strategy is obviously not rescuing the company for the predicament in which he placed it. Caesars can’t expand fast enough to stay ahead of the debt collector, it would seem. And the prospect of Caesars Growth Partners borrowing money to pay for the assets that Caesars Entertainment is offloading gives the whole charade the tint of theatre of the absurd. In any event, Caesars Entertainment is expected to devour much of that cash this year, raising the likelihood of a 2015 restructuring. Wall Street, however, remains sanguine, with CZR shares enjoying a two-day rally.
Is Caesars still bent on purchasing Revel Resort (in which event it will probably close its Showboat Atlantic City)? Longtime Revel nemesis Unite-Here values Revel at a priced-to-move $25 million to $73 million, a valuation derived from the analysis of publicly available documents. It’s quite a slap at the $2.4 billion resort to say that it’s lost as much as 99% of its resale value. “Overpaying could lead to an even more painful bankruptcy down the road,” offered Unite-Here analyst Ben Begleiter. Even more dauntingly, the union predicts that Revel won’t be profitable until 2024. So this is a rescue project for an operator who’s prepared to hunker down and absorb some punishment. Caesars could minimize its risk by assuming a simple management contract, but that’s not one of the options Revel CEO Scott Kreeger has put on the table. Revel’s strongest appeal as it flirts with a second bankruptcy isn’t its glass, bricks and mortar but may be its three unused Internet-gambling permits. How’s that for irony?
