Why Caesars Entertainment’s capital structure is unsustainable



Caesars Entertainment’s liquidity concerns

Standard & Poor’s recently downgraded Caesars Entertainment’s (CZR) bond credit rating to CCC as a result of liquidity concerns. CZR has been generating negative free cash flows since 2009, with a peak of $836 in 2013. However, companies like MGM Resorts (MGM), Wynn Resorts (WYNN), and Boyd Gaming (BYD) have generated positive free cash flows of $748 million, $1,170 million, and $133 million in 2013, respectively.

ETFs like Consumer Discretionary Select Sector SPDR Fund (XLY) give overall exposure to the leisure industry.

Free Cash Flow

Analyst perspectives on Caesars’ capital structure

“The capital structure is unsustainable and a restructuring of some form is increasingly likely over the near term. The company will continue to burn cash to fund capital expenditures and interest payments, and we expect Caesars will need additional liquidity in 2015,” said Standard & Poor.

Caesars’ management commits to reduce debt and improve equity

Gary Loveman, Chairman, CEO and President of CZR, said “We are committed to working constructively with creditors to deleverage Caesars Entertainment Operating Company (or CEOC) and create a path toward a sustainable capital structure for CEOC that is in the best interest of all stakeholders.”

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Mr. Loveman also said that CZR would turn its attention to extending the 2016 and 2017 maturities. “Upon completion of the credit facility amendment recently announced, CZR will have added headroom under its maintenance covenant, providing CZR with additional stability to execute its business plan. If Caesars successfully lists its equity securities, this independent listing should help facilitate the eventual raising of equity as well as liability management and debt reduction initiatives.”


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