A casino worker’s union has sounded alarm bells over plans of Caesars Entertainment Corp. to spin assets of its bankrupt operating unit into a real estate investment trust (REIT), which they claimed to be built on sand.
The casino workers union, Unite Here!, has released a report last Tuesday, warning that Caesars REIT plan will only sink the whole business deeper in its debt in the event of a downturn in the gambling industry rather than save the beleaguered casino from its bankruptcy, according to Bloomberg.
Unite Here issued the report on the same day as the hearing of Caesars’ bankruptcy case, where the casino operator attempted to muster support for its $18 billion restructuring plan from key creditors.
Caesars, which sought Chapter 11 protection in January 2015 with some $18 billion in debt, proposed that the gaming company will exit bankruptcy as two separate entities: a REIT that would own land, hotels and casinos, and an operating unit that would rent the properties from the REIT, hold the gambling licenses and run the enterprises.
While Caesars and its creditors continue to bicker over the plan for more than a year, the group said that the REIT concept has yet to be challenged.
“Our general take is that REITs for the gaming industry are like oil and water,” Unite Here’s Ben Begleiter, who put together the report, told the news agency. “They are bad for the workers and bad for customers and ultimately bad for the company.”
Begleiter warned that Caesars’ debt will balloon to $6.05 billion should it proceed with the plan, making it the second-highest debt level of any retail REIT with similar rental contracts, known as triple-net leases. He added that Caesars will also have the highest ratio of debt to earnings before interest, taxes, depreciation and amortization.
Another disadvantage of the Caesars’ plan, according to Begleiter, is the fact that the gaming firm will only rely one tenant to pay for rent, which will be the main source of income.
“Portfolio diversity is a commonly understood safeguard against debilitating revenue declines resulting from downturns in a single industry or the flagging financial fortunes of a single tenant,” Begleiter said in the report.
Unite is not the first group to oppose Caesars’ REIT plan. Last May, Fifteen U.S. lawmaker cautioned Treasury Secretary Jacob Lew from approving Caesars’ REIT plan, saying that doing so would amount to giving the bankrupt gaming firm a taxpayer subsidy.
Caesars’ seeks support from creditors
In a related development, The Wall Street Journal reported that Caesars’ lawyer Nicole Greenbalt told Judge A. Benjamin Goldgar last Tuesday that while senior bank lenders and junior bondholders don’t back their proposal, the company already is already close in getting the backing of its official committee of unsecured creditors.
“I think we are finally in a place where we are in agreement with people other than ourselves,” said Greenblatt.
Caesars’ restructuring plan, however, drew objections from creditors and a federal bankruptcy watchdog during the continuation of the case hearing.
The U.S. Trusteee’s office, an arm of the U.S. Justice Department, has opposed the proposal of Caesars to put its restructuring plan to a creditor vote due to the fact that creditors can’t vote on a plan that revolves around a settlement of multi-billion dollar legal claims that has not yet been signed.
“We don’t even have a deal. I think in no way today should this disclosure statement be deemed adequate. You can’t even understand what the deal is because the deal’s not done yet,” said Denise DeLaurent, a lawyer for the U.S. Trustee’s Office.