Moody's Places Caesars (CZR) on Review for Downgrade
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Moody's Investors Service placed the ratings of Caesars Entertainment Operating Company, Inc.(Nasdaq: CZR) on review for downgrade reflecting the announcement by its parent, Caesars Entertainment Corporation (CEC) that it has reached a definitive agreement to sell four properties to Caesars Growth Partners, LLC (CGP), a joint venture with Caesars Acquisition Company owned by CEC and shareholders of CEC. CGP will acquire Bally's Las Vegas, The Cromwell (formerly Bill's Gamblin' Hall & Saloon), The Quad and Harrah's New Orleans for $2.2 billion, including debt assumption of $185 million and committed project capital expenditures of $223 million, resulting in anticipated proceeds of $1.8 billion. The transaction is subject to regulatory approval, financing, and other customary closing conditions and is expected to close in the second quarter of 2014.
RATINGS RATIONALE
The sale will provide CEOC with needed liquidity to fund operating losses, however, the loss of EBITDA, from four properties, including three located in the better performing Las Vegas market, is negative for CEOC's overall credit profile. The sale is likely the first in a series of steps to address CEOC's unsustainable capital structure that will include repayment of an as yet to be determined amount of bank debt and could include repurchase of existing debt at a discount that Moody's would likely deem to be a distressed exchange. Given CEOC's total debt load of nearly $21 billion, there would need to be a material amount debt reduction to offset the loss of EBITDA and simultaneously reduce CEOC's high leverage and operating losses.
The review for downgrade will focus on the ultimate use of proceeds, the company's liquidity profile, and management's strategy for restructuring its heavy debt load, including the possibility the company will attempt to remove the parent guarantee, as well as the service agreement among various related entities.
At this time there is no change to the ratings for Chester Downs and Marina, LLC (CFR B3; outlook stable) or Caesars Entertainment Resort Properties, LLC (CERP) (CFR B3; outlook stable) as a result of this announcement because the debt is non-recourse to CEOC, and is not guaranteed by CEOC or its parent CEC. However, it is possible that the rating on CERP could be put on review for downgrade if Moody's believes CEOC's or CEC's ability to meet its obligations to CERP under various service agreement will be impaired by these transactions given linkage with CEOC and CEC. The linkage between the corporate entities is evidenced by: (1) a shared services and management agreement with CEOC; (2) intellectual property licenses with CEOC; (3) management agreements with CEC (3) lease payment due from CEOC to CERP for Octavius Tower and Project Linq.
Ratings placed on review for downgrade:
Caesars Entertainment Operating Company & Harrah's Operating Company, Inc. (Old)
Corporate Family rating at Caa2
Probability of Default rating at Caa2-PD
Senior secured guaranteed revolving credit facility at B3, (LGD 2, 27%)
Senior secured guaranteed term loans at B3, (LGD 2, 27%)
Senior secured notes at B3, (LGD 2, 27%)
Senior unsecured guaranteed by operating subsidiaries and CEC at Ca (LGD 6, 93%)
Senior unsecured debt guaranteed by CEC at Ca (LDG 6, 93%)
Harrah's Escrow Corporation and Caesars Operating Escrow, LLC assumed by CEOC
Senior secured notes at B3, (LGD 2, 27%)
Senior secured second priority notes at Caa3 (LGD 5, 76%)
Corner Investment Propco, LLC
$180 million Senior secured term loan at B3, (LGD 2, 27%)
The principal methodology used in this rating was the Global Gaming published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Caesars Entertainment Operating Company is a subsidiary of CEC and sister subsidiary to CERP. CEOC, excluding unrestricted subsidiaries, generated approximately $4.9 billion for the last twelve months ended 9/30/2013.
Caesars Entertainment Corporation is the parent company of CEOC and CERP. CEC generated consolidated revenues of $8.5 billion for the last twelve months ended 9/30/13.
Caesars Resorts Properties, LLC is a subsidiary of Caesars Entertainment Corporation that owns 6 casinos properties and Project Linq. The company generates annual revenues of approximately $1.9 billion.
Chester Downs and Marina, LLC is an unrestricted subsidiary of CEOC. The company generated revenues of $340 million for the last twelve months ended 9/30/13.
RATINGS RATIONALE
The sale will provide CEOC with needed liquidity to fund operating losses, however, the loss of EBITDA, from four properties, including three located in the better performing Las Vegas market, is negative for CEOC's overall credit profile. The sale is likely the first in a series of steps to address CEOC's unsustainable capital structure that will include repayment of an as yet to be determined amount of bank debt and could include repurchase of existing debt at a discount that Moody's would likely deem to be a distressed exchange. Given CEOC's total debt load of nearly $21 billion, there would need to be a material amount debt reduction to offset the loss of EBITDA and simultaneously reduce CEOC's high leverage and operating losses.
The review for downgrade will focus on the ultimate use of proceeds, the company's liquidity profile, and management's strategy for restructuring its heavy debt load, including the possibility the company will attempt to remove the parent guarantee, as well as the service agreement among various related entities.
At this time there is no change to the ratings for Chester Downs and Marina, LLC (CFR B3; outlook stable) or Caesars Entertainment Resort Properties, LLC (CERP) (CFR B3; outlook stable) as a result of this announcement because the debt is non-recourse to CEOC, and is not guaranteed by CEOC or its parent CEC. However, it is possible that the rating on CERP could be put on review for downgrade if Moody's believes CEOC's or CEC's ability to meet its obligations to CERP under various service agreement will be impaired by these transactions given linkage with CEOC and CEC. The linkage between the corporate entities is evidenced by: (1) a shared services and management agreement with CEOC; (2) intellectual property licenses with CEOC; (3) management agreements with CEC (3) lease payment due from CEOC to CERP for Octavius Tower and Project Linq.
Ratings placed on review for downgrade:
Caesars Entertainment Operating Company & Harrah's Operating Company, Inc. (Old)
Corporate Family rating at Caa2
Probability of Default rating at Caa2-PD
Senior secured guaranteed revolving credit facility at B3, (LGD 2, 27%)
Senior secured guaranteed term loans at B3, (LGD 2, 27%)
Senior secured notes at B3, (LGD 2, 27%)
Senior unsecured guaranteed by operating subsidiaries and CEC at Ca (LGD 6, 93%)
Senior unsecured debt guaranteed by CEC at Ca (LDG 6, 93%)
Harrah's Escrow Corporation and Caesars Operating Escrow, LLC assumed by CEOC
Senior secured notes at B3, (LGD 2, 27%)
Senior secured second priority notes at Caa3 (LGD 5, 76%)
Corner Investment Propco, LLC
$180 million Senior secured term loan at B3, (LGD 2, 27%)
The principal methodology used in this rating was the Global Gaming published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Caesars Entertainment Operating Company is a subsidiary of CEC and sister subsidiary to CERP. CEOC, excluding unrestricted subsidiaries, generated approximately $4.9 billion for the last twelve months ended 9/30/2013.
Caesars Entertainment Corporation is the parent company of CEOC and CERP. CEC generated consolidated revenues of $8.5 billion for the last twelve months ended 9/30/13.
Caesars Resorts Properties, LLC is a subsidiary of Caesars Entertainment Corporation that owns 6 casinos properties and Project Linq. The company generates annual revenues of approximately $1.9 billion.
Chester Downs and Marina, LLC is an unrestricted subsidiary of CEOC. The company generated revenues of $340 million for the last twelve months ended 9/30/13.
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