Bondholders of Caesars Entertainment Operating Co Inc (CEOC) may be under increasing pressure as the company plans to raise an additional US$1.75 billion in a new first-lien term loan. Caesars Entertainment Corp’s subsidiary announced the plan last week.
CEOC will raise the term loan under its existing bank credit agreement and use the proceeds to repay more than US$1 billion of debt due in 2015.
“However, this is only a short-term fix. Although there are no maturities due in 2014, the company must repay another US$1.7 billion in debt in 2016,” Moody’s Investors Service said in its credit outlook.
“We regard this move as credit negative because it does little to avert the need for an eventual restructuring, which will lead to creditor losses,” the credit rating agency said.
Fitch Ratings also said the issuance of the term loan and the other contemplated transactions announced by Caesars Entertainment “are negative for most CEOC debt holders”.
CEOC, which owns and manages casinos in most regional markets in the United States, generated US$6.3 billion in annual revenue in 2013 and has about US$18 billion of debt.
The corporate parent’s guarantee behind bonds issued by CEOC is expected to be removed under a credit agreement amendment. Analysts say this would significantly weaken the position of current bondholders when CEOC heads to restructuring.
Reuters reported that CEOC indicated it had already received “orders” for US$1.7 billion.
Despite the new financing, Moody’s believes that signs point to a broader restructuring of CEOC.
“CEOC’s interest burden will continue to exceed EBITDA [earnings before interest, taxes, depreciation, and amortisation], which indicates that the company will be unable to repay or refinance its 2016 debt maturities and that creditors will not receive the full value of their holdings,” Moody’s said.
“We believe that an eventual restructuring at Caesars is inevitable because it has weak liquidity and very high leverage. Assuming the proposed transaction closes, we estimate the company will experience cash burn of US$1.0-$1.2 billion in 2014 and 2015,” it added.
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Credit rating agency Fitch Ratings