Caesars Takes $1.9 in Write-Downs

Las Vegas-based casino operator Caesars Entertainment is reporting a $1.9 billion asset impairment charge related to sinking revenues in Atlantic City (Bally’s AC at left); its abrupt exit from Massachusetts; and a crippling level of long-term debt. There are some bright spots, however: revenues are up and Vegas is going strong.

Caesars has not posted a profit since 2009

Caesars Entertainment has made headlines lately by spinning off subsidiaries, and then selling assets to those subsidiaries in an effort to raise cash and pay down its massive debt load. The latest sign of volatility in the company’s long-term financial picture is a $1.9 billion asset impairment charge, or write-down, chiefly related to its four properties in Atlantic City.

The Las Vegas company owns Caesars, Harrah’s, Bally’s and the Showboat in the seaside resort. It said the write-downs were prompted in large part by “deteriorating market conditions in Atlantic City and potential changes in the expected useful life of certain of our property assets,” as well as a failed attempt to win a Boston-area casino license.

The troubled New Jersey market, which shed 6 percent of revenues in February compared to 2013, has lost more than 40 percent of its total value since 2006. Regarding its future in Atlantic City, Caesars said, “We continue to consider our participation strategies in this region to better align capacity with demand.”

In January, the company joined with the Tropicana to buy the Atlantic Club casino-hotel, close it, and split the assets. According to the Associated Press, Caesars paid $15 million for the land, which abuts the Atlantic City Boardwalk. Tropicana paid $8.4 million for the slots and table games.

Caesars has not posted a profit since 2009, according to the Reno Gazette-Journal. It lost $1.76 billion in the last three months of 2013, compared to $480.3 million in the fourth quarter of 2012. But the company’s revenue has risen 3 percent, to $2.08 billion from $2.01 billion, thanks to an increasingly robust market in Las Vegas.

“There’s lots of reasons for buoyancy in the Las Vegas market,” said CEO Gary Loveman, “and we see a very bright future for us here.”

Caesars carries more than $21 billion in long-term debt, which Bloomberg called “an albatross for a business whose cash flow fails to meet its more than $500 million of quarterly interest expense following a 2008 leveraged buyout.”

The company recently sold four properties, including three in Las Vegas, to a subsidiary in an attempt to manage its debt load. The $2.2 billion sale of Bally’s Las Vegas, the Quad, the Cromwell and Harrah’s New Orleans to Caesars Growth Partners could lead to a restructuring or debt buyback at its Caesars Entertainment Operating Co. subsidiary, reported Bloomberg News. That could mean a loss for investors. 

“The company is positioning it so that there’s really not a lot of options for the bondholders, and therefore the only way out is to do a distressed-debt exchange,” CreditSights analyst Chris Snow told Bloomberg. “They’re taking some of these assets and moving them to high ground, and essentially allowing the flood to take over the rest.”