Moody’s: Sale equals a downgrade
Caesars Entertainment Corp. has announced the pending sale of four properties, including three on the Las Vegas Strip along with Harrah’s New Orleans. The buyer: a company subsidiary, Caesars Growth Partners, which is paying $2.2 billion for the quartet of resorts. Caesars owns 58 percent of the subsidiary. The remaining 42 percent is controlled by Caesars Acquisition Co., a publicly traded holding company.
Caesars says the transaction will generate proceeds of $1.8 billion, and allow the company to keep the assets in its own portfolio. The influx of cash should allow Caesars to reduce a portion of its historic debt. The company owes a total of $23 billion, a high water mark for the industry that many analysts have said is unsustainable.
In a March 2 conference call, Caesars Entertainment CEO Gary Loveman said the company has made “considerable progress” in taking on the debt load.
Caesars Entertainment will continue to run the four properties, which include Bally’s Las Vegas, the Quad and the Cromwell, all in Las Vegas, as well as the New Orleans resort.
“Today’s asset sales mark an important step in our ongoing efforts to repair Caesars Entertainment’s balance sheet,” Caesars Chairman and CEO Gary Loveman said in a statement.
Caesars Acquisition Co. expects the deal to close in the second quarter. Caesars Entertainment will manage the properties.
On news of the sale, Moody’s Investors Service put Caesars Entertainment Operating Company Inc.’s ratings on review for downgrade. Though the move frees up some cash, it’s not a positive for the company’s credit profile, Moody’s said.
Fitch Ratings analyst Michael Paladino told the Wall Street Journal the deal could be negative for investors in the weakest unit of the company. “The transaction is leveraging and it removes assets from that part of the capital structure,” he said.
Caesars plans further restructuring, according to Bloomberg News. The company reported preliminary fourth-quarter revenue of $2.05 billion to $2.11 billion. Analysts had estimated sales of $2.13 billion on average, according to data compiled by Bloomberg.
Meanwhile, shares of Caesars Entertainment have risen 19 percent so far in 2014, and shares of Caesars Acquisition are up 13 percent for the year.
