Casino operator Caesars Entertainment has publicly copped to a fact the rest of the world has long since recognized: the company’s debts are unsustainable. In a filing on Friday with the Securities Exchange Commission, Caesars said its total debt as of Sept. 30 was $25.5b, $18.4b of which is held by its main unit Caesars Entertainment Operating Co (CEOC). CEOC properties generated 61.7% of Caesars’ overall revenue in the first nine months of 2014.
The company’s remaining debt servicing obligations in 2014 come to $831m, of which $738m is pure interest payments. For 2015 as a whole, the company’s debt obligations come to $2.47b, of which $2.3b is interest. The company says the ongoing downturns in its Atlantic City and regional market operations means the company expects to operate at a loss “for the remainder of 2014 and the foreseeable future.”
Caesars says CEOC has $1.48b in cash and equivalents as of Sept. 30 but, given the rate with which the company is burning through cash, Caesars expects CEOC will be broke by Q4 2015. The only ways out of this predicament are finding someone foolhardy enough to lend Caesars more money or for Caesars to seek a Chapter 11 bankruptcy restructuring.
Caesars has been conducting negotiations with its first lien debt holders since the middle of the year to prepare the ground for a restructuring plan. While one of these senior creditors has since walked away from the table, Bloomberg reported earlier this week that Caesars had secured the agreement of six major investment funds – including Elliott Management Corp and Pacific Investment Management Co – for a plan that would put Caesars into Chapter 11 by mid-January.
This plan relies on Caesars’ belief that the numerous lawsuits filed against it by second-lien debt holders will not hold up in court. These creditors have complained that Caesars’ transfer of many of its more profitable assets into its Caesars Growth Partners (CGP) offshoot were intended to shield these assets from a CEOC bankruptcy, leaving second-lien creditors looking at a threadbare Christmas.
Over 600 Caesars employees are also looking at a bleak new year after Caesars announced it intended to trim “less than 1%” of its total 68k-person workforce. In this week’s earnings call with analysts, Caesars CEO Gary Loveman said the company was looking to trim $300m in corporate, marketing and operations expenses.