Caesars bankruptcy filing could be good news for its Atlantic City casinos

Caesars Entertainment's largest business unit filed for Chapter 11 bankruptcy in a Chicago court Thursday in an effort to restructure its finances.

Caesars Entertainment Operating Co. (CEOC), which owns the Caesars and Bally's casinos in Atlantic City and Caesars Palace in Las Vegas, said those holding 80 percent of its first-lien debt approved the move.

Its restructuring plan would "significantly reduce long-term debt and annual interest payments," the company said in a statement. The restructuring will cut the company's debt to $8.6 billion from $18.4 billion. Its annual interest expense would be cut down by 75 percent to $450 million from $1.7 billion.

As part of the restructuring, CEOC will convert its corporate structure by separating its gaming facilities and real property assets into two companies: An operating entity and a newly formed, publicly-traded real estate investment trust.

The restructuring is conditioned upon the release of all pending and potential litigation claims against Caesars Entertainment and Caesars Acquisition Co.

The company said all properties would remain open for business and would continue operating.

Good for Caesars and Bally's

For Caesars and Bally's in Atlantic City, the bankruptcy could possibly be a blessing.

"Atlantic City is very close to reaching that point where it's a parody with the amount of business they have," said Alan Woinski, CEO of Gaming USA Corp. "Overall, it should be better for the properties. Less money having to pay debt means [more money to] refresh the floor and marketing."

Harrah's and Caesars were the main reasons why the "replacement cycle" of slot machines has been so low, Woinksi said, because they've been using decade-old slot machines due to lack of funds for new ones.

"Taking away the debt and the need to service that debt, now you have the potential that — down the road — you have better, refreshed properties and better marketing," he said. "When they come out of bankruptcy, it'll be a positive thing for the individual property."

Although many casinos have recently closed in Atlantic City, Bally's does not appear to be in danger, said Woinski.

Long-awaited bankruptcy

The bankruptcy move doesn't come as a surprise to industry experts, though, since Caesars was acquired by two private equity firms in 2008 as a leveraged buyout.

A lot of companies went private around the same time and went bankrupt — but Caesars was the last because it "kept doing an 'extend and pretend,' getting new debt and extending out maturity under the pretense that they would pay it back."

But they had more in interest than there was earnings before depreciation and amortization (EBIDA).

"It was pretty well-known this was going to happen. It's not anything new," said Woinski. "Once they missed the interest payment 30 days ago, they had to pay [or be in default.]"

The company's junior bondholders are trying to get the case moved from Delaware courts to Chicago because it may be a more lenient court, Woinksi said.

The case could be similar to the case of Airadigm Communications, a phone company that filed for Chapter 11 and ended up before a federal appeals court in Chicago in 2008, according to The Wall Street Journal.

"The Chicago appeals court made it easier for ailing companies to force creditors to drop lawsuits against entities outside the bankruptcy, such as company leaders who were calling the shots — even though they themselves aren't under bankruptcy protection," The Journal said.

The equity holders and senior bondholders would remain relatively unscathed, but everybody else will take "a really big haircut, which is somewhat normal in a bankruptcy," Woinski said.

The difference is that since CEOC, and not parent company Caesars Entertainment filed for bankruptcy, the stockholders won't be "fleeced."

But it won't be as easy as media outlets are making out to be, Woinksi said, since Caesars will be operating a real estate investment trust (REIT).

"The properties they sold that started all the problems when they sold them into Caesars Acquisition Co. will be brought back into the fold," he said, which include Harrah's New Orleans and Planet Hollywood in Las Vegas.

Source: Philadelphia Business Journal