When I said a Caesars Entertainment bankruptcy was a matter of when, not if, little idea did I have how soon that might be. Earlier this week, Fitch Ratings Service lowered Caesars’ bond rating to “negative,” a veritable kiss of death for the company that carries $19.9 billion in debt. CEO Gary Loveman “could look to execute transactions that Fitch views as a default,” wrote a Fitch analyst. Or, it could try to build a life raft in the form of an IPO or spinoff of Caesars Interactive, which includes the World Series of Poker. The Motley Fool, however, thinks the short-term gains are far outweighed by the long-term sacrifice. Yours truly thinks the domestic revenue prospects from online gambling are much overrated, particularly by Loveman, but that’s one way to scare up some quick cash — “scare” being the operative verb. With Caesars looking at negative cash flow through 2015, desperate measures are the order of the day — time to knock down that $500 million asking price for The Rio, Gary!
The CEO/CFO/President/Chariman/High Pajandrum may also have to dismantle Caesars’ not-so-magical empire by trading away assets in lieu of repayment. (A foreclosure by any other name .. ) This raises the perverse aspect of Loveman trading away existing, wholly owned assets in order to pursue chimeras like a minority stake in a $1 billion racino at Suffolk Downs (above). Quite a sense of priorities, no?
S&G has hammered for a good five years on the callous neglect Loveman has visited upon Caesars’ Strip properties. (Incidentally, a weekday recent drive-by of Linq found an impressive-looking trestle in place for the Ferris wheel, but no 
evidence of ongoing work.) Indeed, Fitch’s Michael Paladino writes, “concerns about weakening relative asset quality due to constrained capital reinvestment, more than offset the positive credit impact from recent transactions executed to push out its debt maturities meaningfully.” In other words, Loveman has been Pennywise and pound-foolish. True, Horseshoe Casino Cincinnati continues apace for a 2013 opening, but Dan Gilbert is doing the heavy lifting and Caesars’ share of the anticipated lucre ($300 million/year) is relatively paltry. Also, regional markets have been soft-to-weak at a time when Caesars really needs them to come on strong.
Fitch’s dispatch send Caesars’ “cocktail party” stock — the Facebook of the gaming sector, peaking at $17.80/share — into a Wednesday crash dive, bottoming out at $6.38/share before eking out a rally all the way up to $7.20/share. The company’s meager market cap isn’t helping matters, to be sure. A tailspin at the former Harrah’s Chester Downs (above) — now Harrah’s Philadelphia — is also highlighted by Fitch as cause for alarm.
Caesars’ private-equity bosses — Texas Pacific Group and Apollo (Mis)Managenement could arrange to loan money from the Caesars parent company to its subsidiaries, as was already done with a $220 million IRS refund. Fitch deems further, direct capital infusions from corporate raiders David Bonderman and Leon Black unlikely. On the bright side, Caesars needs only $130 million to finish Linq and fulfill its commitment to a Rock Gaming casino in Baltimore.
When he went shopping Caesars around as an LBO prospect — a transaction in which he worked both sides of the street — Gary Loveman was looking for trouble. Congrats, Gary. You’ve found it … in spades.
Any idea if they have positive cash flow if the interest on their debt is factored out? And this is such a low interest rate environment! Like a lot of people, I suspect, it’s just amazing to me that Caesars could be in such bad shape. I did not know him but I’ll bet Bill Harrah is spinning in his grave. It sure looks like this sad story is a classic business school case study in the failure of Loveman’s data “über alles” approach, a vision shared by many, including the wonks running much of the Obama campaign in Chicago.
Companies with large swaths of valuable land and brand name recognition rarely fall all the way down. I would not expect a fire sale, there is a lot of money sitting on the sidelines, offshore. Loveman might not survive, but Caesars will still be Caesars at the end of the day. MGM did not die, and neither will Caesars IMHO …
I agree, Harrah must be spinning, but at least they took his name off it. Certainly, there’s no shortage of ‘rotatin Romans’ these days, either. Speaking of which, did you photoshop Loveman’s fiddle out of the picture?
You’re right, Howard, it’s those whopping interest payments that are making Caesars a negative-ROI prospect these days.
Had a guest from Boston today ask if CZR would be running Suffolk. I told him “no way.”
He says he sees Loveman on TV all the time out there. If Caesars runs Suffolk, it’ll be as a minority partner … sans Loveman.
CZR’s deal with Richard Fields is to hold a minority stake and a management contract. However, unless Texas Pacific Group and Apollo Management fire Loveman, he’s part of the package being the CEO, CFO, President and COB of Caesars. It would be a sore humiliation if he were ousted from the Boston market, in front of the hometown crowd.
Please name one strategic decision in the last 10 years that Loveman made correctly. The only superior management quality he has is the ability to survive.