Strategy: delay debt maturities
With more than $1 billion in debt due next year and $2 billion in maturities coming in 2016, Caesars Entertainment will likely divest of some of its properties, including one or more in Atlantic City, where the company has four casino resorts. Caesars carries a record $21 billion in debt, and has already made plans to sell its Harrah’s Tunica property in Mississippi.
On April 5, Caesars announced a five-step plan to eliminate the company’s 2015 financial obligations and reduce debts that will come due in 2016 and 2017. Caesars plans to raise $1.75 billion in new debt and sell 5 percent of the company’s equity to institutional investors, the Las Vegas Review-Journal reported.
Caesars is not the only casino operator that may shed underperforming operations in the coming months. Among 33 U.S. gaming companies with Moody’s B-rated debt, 36 percent of total obligations will come due by the end of 2018, the Review-Journal reported. More than half of the debt held by 12 companies will mature in that year.
Three companies burdened with long-term debt include the Mohegan Tribal Gaming Authority, owner of Mohegan Sun in Connecticut; CCM Merger, parent company of the Detroit’s Motor City Casino; and Marina District Finance Company, a partnership of Boyd Gaming and MGM that owns the Borgata in Atlantic City.
“Although the sector has stabilized since the recession, it has not shown signs that it has, or will, improve along with the broader economy,” Moody’s analyst Keith Foley said in an April report.
Foley said most casinos have a few years to come up with solutions, and only 13 percent of total outstanding debt is due by 2016. “Additionally, none of these companies has weak liquidity,” he said.
Caesars is another story. In a May 7 report, the company said its net loss was up 78 percent in the first quarter, for a loss of $386.4 million or $2.82 per share. A year ago, the company lost $217.6 million, or $1.74 per share. Net revenue declined 1.9 percent to $2.1 billion.
“Las Vegas remained a bright spot with strength in the hospitality categories, but regional business trends were unfavorably impacted by extreme weather and softness in visitation in the first quarter,” Caesars Chairman Gary Loveman said in a statement. That said, Loveman added, “As additional assets come on line later this year and into 2015, we are excited about Caesars’ prospects in Las Vegas.
The company is also “looking forward to developing an integrated resort in South Korea with our partners there, a promising market given its proximity to China.”
The company’s debt restructuring effort will not eliminate any of its crushing debt, just put off some near-term obligations. Under the plan, Caesars will avoid $1 billion in payments that are due in 2015.
KDP Investment Advisors gaming analyst Barbara Cappaert said it is “not nearly the comprehensive restructuring many investors, like us, were expecting. It certainly sets the stage for one later on, no doubt.”
While Las Vegas is flourishing, Caesars’ holdings in Atlantic City?Harrah’s, Bally’s, Showboat, and Caesars?collectively have become something of a millstone, and at least one may be vulnerable to imminent closure. Those four casinos along with Harrah’s Philadelphia saw revenues decline 13.7 percent to $315.3 million.
“We’re troubled by Atlantic City,” Loveman said. “We believe there is too much capacity in the market.”
As a direct result of this corporate economic distress, the Ohio Casino Control Commission at its May 22 meeting will review the finances of the 20 percent owner of the Horseshoe Casinos in Cincinnati and Cleveland: Caesars Entertainment Corp.
Caesars financial stability, especially its $23 billion debt and the fact that it recently closed a casino in Mississippi and is talking about closing one in New Jersey, have attracted the commission’s attention.
The casino company attracted further unwanted attention in Ohio when it recently announced that it will require table game workers to “bid” for new schedules, and will probably force some into part time positions.
According to the casino management, this does not reflect any financial difficulty with the casino, but a modification to reflect players’ patterns after one full year of operation at the Horseshoe Cincinnati.
The commissioners will get a chance to grill Caesars General Counsel Michael Cohen about the gaming giant’s recent debt restructuring moves and how that might affect the two Ohio casinos of which Caesars is part owner.
But even with this economic uncertainty, last week the Horseshoe Cleveland Casino announced that it will open a sports bar with 42 gaming tables in the fall as part of a $4.2 million renovation. The TAG Bar will include a 2,000 square foot electronic gaming center and lounge. It will be located on the second floor, near the skywalk entrance. The renovation will include moving table games to where 200 slot machines have been located. Those slots have been removed to make room for the table games.
The Horseshoe Cleveland opened in May 2012 with 2,083 slots and 94 gaming tables. It added table games that November and decreased the number of slots to 1,858. Currently it has 1,607 slots, which produced $10,151,248 in revenue in April.
The Horseshoe Cincinnati Casino has 1,988 slot machines that produced $11,286,413 in revenue in April.
The Hollywood Columbus, operated by Penn National Gaming, has 2,497 slots that produced $11,711.310 in revenue last month.
The Hollywood Casino Toledo, which Penn also operates, has 2,045 slots that produced $13,237,439 in revenue in April.