Caesars Entertainment continues to progress towards the day later this year when it will be evaluated by investors as the Las Vegas-regional giant casino operator that it is.
In a step back to normality, Moody’s analyst Peggy Holloway assigned a provisional Ba3 rating to the debt Caesars Entertainment Operation Company is issuing to finance its emergence from bankruptcy and which is part of the bigger reorganization of parent Caesars Entertainment.
She applied the same Ba3 to the company’s corporate family rating and pronounced the credit outlook at stable.
Perhaps most interesting is Holloway’s description of CEOC and her expectations for it.
“The (P)Ba3 Corporate Family Rating reflects new CEOC’s large scale of operations in terms of revenues and number of properties operated, a high level of geographic diversification relative to its regional gaming peers, improving profitability, and ability to generate free cash flow after capital spending and mandatory debt amortization.”
It’s been a long time since an analyst credited Caesars for its strengths of scale and diversity, and noted the ability to generate free cash flow after capital spending. Indeed, Holloway made a point of saying that Caesars will generate enough cash flow to meet higher levels of investment in its properties. Those investments have been outlined by CZR CEO Mark Frissora who has described comprehensive renovations of hotel rooms company wide.
Holloway expects the new CEOC to have a lease-adjusted debt-to-EBITDAR ratio of six times, falling to 5.7 times in 12 to 18 months on 1 percent revenue growth.
She estimates EBITDAR will be 1.4 times spending on rent, interest and capital expenditures, a ratio she calls healthy.
CZR has also scheduled an analyst day in May, a definite indication that the company is ready to return to the active investor world.
Penn Process
Penn National has given shareholders in regional casino companies reason to cheer by upping its guidance for the first quarter.
PENN now expects to generate $222 million to $223 million in adjusted EBITDA in the quarter compared to an earlier estimate of $209.3 million, and EBITDA after rental payments to Gaming & Leisure Properties of $110 million to $111 million vs. earlier guidance of $97.4 million.
The improvement is based on strong property performance across the company, CEO Tim Wilmott said.
Further, Wilmott said, PENN’s pursuit of operating efficiencies bodes well for the balance of the year and for efforts to “increase cash flows, reduce leverage and return capital to shareholders.”
And, though Wilmott did not address the subject in the company news release, those results come despite the opening of MGM Resorts’ National Harbor casino near Washington, D.C., that is crimping revenues at PENN’s Hollywood Casino in the Washington exurb of Charles Town, West Virginia.
As might be expected, investors converted their cheers into a higher stock price as PENN jumped 11.63 percent on the Thursday announcement.
The two other biggest regional casino operators also benefited from PENN’s announcement as Boyd shares advanced 3.88 percent and Pinnacle 5.06 percent on a day the overall market declined.
The after-lease EBITDA growth of 13 to 14 percent comes on much more modest revenue growth of a little over 1 percent, which further emphasizes Wilmott’s point of operating efficiencies.
That also lends credence to optimism for PNK and BYD where management continue to emphasize efficiencies and cost controls. Much of that has been achieved by changing the nature of how the casino operators market, as focusing on higher-tier customers and avoiding promotional wars seems to have become a way of life.
The question raised in recent quarters is about revenue growth under the assumption that higher cash flow bases on operational efficiencies can be achieved for only so long.
The Penn National announcement suggests that point hasn’t yet arrived.
