Casino operator Caesars Entertainment lost a staggering $908m in Q3 2014 – roughly $10m per day – as the financially struggling firm wrestles with its industry high debt load. Revenue in the three months ending Sept. 30 rose 6% to $2.21b but a combination of interest payments, unfavorable VIP gambling hold and bad debts combined to cover Caesars’ Q3 report in yet another wash of red ink.
Casino gaming revenue was up a mere 0.3% to $1.4b and the overall revenue picture would have been much worse were it not for the performance of Caesars Acquisition Company (CACQ), which enjoyed healthy gains via its interactive operations. As it stands, Caesars’ quarterly loss was 19.3% higher than reported in Q3 2013. For the year-to-date, Caesars has lost $1.76b, nearly $600m more than its losses over the first nine months of 2013.
Bad luck at the baccarat tables at Caesars Palace in Las Vegas were credited with trimming $35m from Caesars’ operating income. Also contributing to downward momentum was an extra $23m in bad debt expenses, not to mention the $708.3m in interest charges on Caesars’ debts. Caesars’ long-term debt came to $22.9b at the end of Q3.
‘LOST’ REVENUE FROM ATLANTIC CITY CASINO CLOSURES
Caesars CEO Gary Loveman said Caesars’ regional markets outside Las Vegas and Atlantic City “appear to be showing signs of stabilization,” leaving the company “cautiously optimistic about slowing declines and signs of growth.” But Loveman said Caesars plans to trim up to $300m in corporate and marketing expenses, suggesting that “sophisticated stimulants and inducements” to lure customers to markets other than Las Vegas had become “very tough to do” profitably.
These cuts would include the “cessation of a lot of advertising and stimulation in Atlantic City in the off-peak periods of this quarter and next.” Loveman said this year’s closure of four AC casinos – including Caesars’ Showboat property – meant that “a lot of the revenue in the market associated with the businesses that are now left was lost and only a portion was retained.”
However, Loveman expressed confidence that Caesars will recover “well over half of the revenue and as much as two-thirds or three-quarters of the trips of the Showboat guest” at Caesars’ three remaining AC properties. Efforts to achieve this goal have proven “a little bit more costly than I would have anticipated” but Loveman believes it to be “money well-spent.”
DEBT IN THE WATER?
Caesars Entertainment Operating Co (CEOC), the division that holds most of Caesars’ debt, reported just under $1.5b in cash and equivalents at the end of Q3. On Tuesday, KDP Investment Advisors analyst Barbara Cappaert issued a research note suggesting CEOC could “run out of cash” by Q2 2015 without some progress on Caesars’ debt restructuring plans.
On the post-earnings call with analysts, Loveman declined invitations to expand on the progress of the restructuring talks with creditors, other than to say the talks had been “constructive.” But late last month, Bloomberg News reported that hedge fund Perry Corp had walked away from the talks. Other creditors have hit Caesars with multiple lawsuits protesting the alleged illegality of Caesars’ attempts to shift its more profitable assets away from the floundering CEOC ship.
On Dec. 15, Caesars has a $225m interest payment to its second-lien note holders coming due, a payment some analysts believe Caesars will decline to make in order to preserve cash for its preferred creditors in the wake of a (surely) inevitable bankruptcy proceeding.
UPDATE: Late on Tuesday, Bloomberg reported that Caesars had reached agreement with key senior creditors on the broad strokes of a restructuring plan that would include CEOC filing for bankruptcy as early as January 14. Such a deal would virtually guarantee second-lien creditors get Caesars’ royal shaft.