Inside Asian Gaming

inside asian gaming January 2015 28 Feature with so many lenders involved isn’t practicable and the issues will languish in Bankruptcy Court indefinitely, mired in endless objections. “That’s the amazing thing about it,” a New York portfoliomanager familiar with the talks said. “If you put 20 managers and analysts in a room, you’re going to get 20 different opinions on Caesars.” Either way, the clock is ticking. entity (Nasdaq: CZR) for what would be three discrete asset portfolios: Five Las Vegas casinos, four of them on the Strip, together with Harrah’s Atlantic City were shunted into Caesars Entertainment Resort Properties with a refinanced debt load of $4.7 billion. Planet Hollywood in Las Vegas, CZR’s current 41% stake in Horseshoe Baltimore, the onlineandmobilebusiness knownasCaesars InteractiveEntertainment and the World Series of Poker brand were reorganized as Caesars Growth Partners and spun off as a second public company, Caesars Acquisition (Nasdaq: CACQ), majority owned by CZR, Apollo and TPG. Caesars Growth Partners’ debt stands currently at around $2.3 billion, and in May of last year, in a move that really riles creditors, CEOC sold Harrah’s New Orleans, Bally’s Las Vegas and the two newest Strip casinos, the remodeled and rebranded Cromwell and the LINQ Hotel & Casino, to Growth Partners, thus leaving CEOC with only one Las Vegas asset, Caesars Palace, which CZR is now proposing to break off as its own REIT and remortgage to support the CEOC restructuring. Caesars, it turned out, was also too big to succeed. A QUESTION OF BALANCE It has to be believed that Caesars still wields the upper hand in these negotiations by virtue of the logic that gave birth to it: it’s too big to fail. For while creditors farther back in the queue may see a breakup of the company as their best shot at a recovery, the last thing institutional investors want is to be custodians of a couple dozen drive-up gambling houses in places like Joliet, Illinois, and Council Bluffs, Iowa, and Tunica, Mississippi. The US regional casino environment where Caesars is so heavily invested is “fundamentally weak,” as investment brokerage Union Gaming Research put it last September, and has been ever since the recession technically ended. Commercial and tribal casinos combined produced $66.3 billion in gaming revenue in 2013, which was a record, but it was only 1.6% better than 2012, despite the fact that six states opened new casinos or expanded their offerings. Same-store results nationwide were down 3.1%. Since the worst of the downturn, five new states have added casinos, five have added racetrack slots and more than 20 new tribal venues have opened, and over this time, gaming revenue has grown an average of 1.46% a year. Through September, only three of 15 commercial markets tracked by Union Gaming showed year-on-year growth, and all three had new openings to credit it to. Overall, Moody’s Investors Service rates the US gaming industry’s prospects as “negative” for at least the next 12 to 18 months and believes annual revenue collectively could actually decline over this time. Caesars has responded by selling or closing five casinos. But the risks inherent in its capital structure were apparent long before the downsizing began. In fact, within two years of engineering that structure, Apollo and TPG were working to dismantle it, and in 2012, Caesars was led back to the public markets and rejiggered as a holding Caesars posted a net loss through 30th September of $1.79 billion after interest payments of $1.95 billion and was looking at forking over another $737.9 million for debt service before 2014 was out. Arrayed against these obligations was possibly $1.8 billion or so in property EBITDA for the entire year. Caesars is heavily invested in ‘fundamentally weak’ regional markets