Caesars’ long road to restructuring its Caesars Entertainment Operation Co. (CEOC) through bankruptcy might finally have an end on the horizon.
A bankruptcy court has set next January 17 as the date for confirmation hearings to begin and has given CZR authority to begin getting note holder approvals for its plan.
CZR is reportedly close to those approvals from senior creditors, though lawsuits by junior creditors are still in process.
The CZR plan would basically reduce CEOC’s debt from around $18 billion to $8 billion and spin it off as a REIT.
What Caesars will look like after bankruptcy court remains uncertain with junior creditor lawsuits still in the works that could force radically different conclusions, including the parent company itself going into reorganization.
However, at some point the process does end and investors will again begin looking at CZR as a conventional casino operator.
If it ends something near what CZR now proposes, investors could begin taking an early look, and what they might see is a surprisingly healthy company at $8 billion or so in debt.
During the first quarter, for example, CZR generated $336 million in property EBITDA, 8.8 percent higher than last year as adjusted EBITDA grew 15.9 percent to $349 million.
For back-of-the-envelope purposes, extrapolate those numbers out to four quarters and EBITDA of around $1.4 billion, more than enough to cover interest expense on the much lower debt.
CEO Mark Frissora points to operational improvement and money finally being reinvested in properties outside of Las Vegas and wants investors to take a look for the day Caesars returns to normal life.
The Proof In The Pudding
MGM Resorts apparently achieved its goals with its recent first-ever investor day.
Sell-side analysts returned with positive, some even downright bullish, reports.
They lauded MGM’s outline of how it will grow EBITDA from around $2.3 billion this year to $4 billion, and they waxed about the impact of such growth on free cash flow and debt reduction.
They enthusiastically reported the expected benefits of MGM’s investments in diversifying non-gaming revenues in Las Vegas with arenas, convention space, shopping, and ever higher hotel revPAR.
Among the bulls is Steve Wieczynski of Stifel Nicolaus who calls MGM his best idea in gaming. Rachel Rothman of Susquehanna Financial raised her target price on the stock $4 to $31 and said a case can be made for $40 assuming MGM reaches $3.4 billion in EBITDA in 2018 and MGM Growth Properties reaches $1 billion. MGM owns about three-quarters of MGP, the REIT it recently created to hold the real estate of most of its casinos.
So, MGM has become an analyst darling, and there certainly is a lot to like about the story. Further, in recent years, MGM management appears to have gotten religion about improving the balance sheet and creating value for investors.
Now, the plan has been laid out. The Las Vegas projects have been built. The economy is providing a tail wind. Las Vegas is booming again. Plus, there’s icing on the cake, as MGM will host a National Hockey League team in its new arena.
What is needed now to live up to the bullish outlook is management execution. As the old saying goes, the proof of the pudding is in the eating.
