Casino Operator Bankruptcy Streamlined By Debt Restructuring
Posted: January 12, 2015
Updated: October 6, 2017
Where once to own a casino was to sit atop a gold mine increased competition, locally and globally, has led to some serious consolidation of those on the margins of success
With the current juncture of economic fluctuation still revealing very sparse indications or markers of future levels of growth heavily influenced to no small degree by the over-reaching partisan conflagration of inaction and inaccuracy in the political classes that have left business interests with few alternatives but to consolidate, especially in sectors that are showing contraction, albeit it quite slight.
The investment potential of the gambling sectors lucrative profit percentages has risen from being that of a somewhat dubious and unwanted reputation in the now long gone days of the post-war era, through the tarnished yet profitable years of manifest and obvious organized criminal involvement, to the current situation whereby the fullness of time has granted to the large asset management companies and private equity corporations an opportunity they have done nothing to squander.
Despite the disconnected fragmentary nature of investment trends over the last few decades the overall nature of the gaming industry has often been poisoned by perception both amongst the public and the investor pool, however as the efforts of law enforcement and the intelligence community slowly eroded the influence of criminal organizations within the sector the appeal of the high-end profit business model became far less colored by its past.
Certainly states across the US have done much to capitalize on this flexibility of attitude with revenues of numerous states now being bolstered by both the license sale and ongoing taxation of gambling establishments of every variety as these individual states changed US gambling laws, breaking the age old duopoly and setting the scene for a huge war not of mafiosi but of investors and investment companies. The massive competition this wave of legalization produced created ever larger gambles for those investing.
Caesars Entertainment Operating Company, for instance, is saddled with a debt now estimated to be around $18.4 billion dollars after a massive $30 billion dollar buyout at the time of crisis. This means that at present the company is liable for an annually repetitive interest payment on that debt of something in the region of $1.7 billion, the sustainability of which is questionable under even prime economic conditions that at present do not prevail.
Naturally that has led to the impending filing for Chapter 11 bankruptcy which has left investors being lobbied for a project of debt restructuring that would streamline the process of bankruptcy for which it required, in essence although not necessarily in practice, a two thirds majority of the players involved to voice their consent and act accordingly. This move has been widely seen as a positive move against the backdrop of recent market shifts, and Caesars is making good progress in the program.
The restructuring would reduce overall debt to $8.6 billion that would lessen interest payments to an almost manageable $450 million a year, and the wrangling over the details behind the program have been lengthy with TPG and Apollo far more forward than the now less than reticent BlackRock. These negotiations have seemingly now been settled with a definite air of need rather than desire amongst those at the table. With the deal signed the future is far less uncertain, but there are still some question marks.
The recovery of Las Vegas has prompted alarm bells amongst investors that were already chiming hard following the year of doom suffered by Atlantic City. Vegas has diversified and that shows in the reasons for people visiting and the numbers of those doing so, and when gambling isn't the biggest draw or attraction in the gambling capital of the world there is reason to believe that a new dynamic is at play, one that might well spell out the need for further restructuring in the future.
With competition from the gleaming spires of Macau and the rise of those who like internet betting in the US for it's ease, convenience and security, these investors are still taking a huge gamble, but that they are willing to do so at all speaks volumes not only about the gaming sector in the US but the economy as a whole and the closer we get to the 2016 the more salient that will become not just for average Americans but also for the casino investors.
With the current juncture of economic fluctuation still revealing very sparse indications or markers of future levels of growth heavily influenced to no small degree by the over-reaching partisan conflagration of inaction and inaccuracy in the political classes that have left business interests with few alternatives but to consolidate, especially in sectors that are showing contraction, albeit it quite slight.
The investment potential of the gambling sectors lucrative profit percentages has risen from being that of a somewhat dubious and unwanted reputation in the now long gone days of the post-war era, through the tarnished yet profitable years of manifest and obvious organized criminal involvement, to the current situation whereby the fullness of time has granted to the large asset management companies and private equity corporations an opportunity they have done nothing to squander.
Despite the disconnected fragmentary nature of investment trends over the last few decades the overall nature of the gaming industry has often been poisoned by perception both amongst the public and the investor pool, however as the efforts of law enforcement and the intelligence community slowly eroded the influence of criminal organizations within the sector the appeal of the high-end profit business model became far less colored by its past.
Certainly states across the US have done much to capitalize on this flexibility of attitude with revenues of numerous states now being bolstered by both the license sale and ongoing taxation of gambling establishments of every variety as these individual states changed US gambling laws, breaking the age old duopoly and setting the scene for a huge war not of mafiosi but of investors and investment companies. The massive competition this wave of legalization produced created ever larger gambles for those investing.
Caesars Commits To Restructuring
Gambling news in the future would and will be of continued economic boom the scramble to make large scale capital investment in casino infrastructure across the US the massive growth in the sector is such that it has begun to harm itself with over saturation in harder economic times. Those harder economic times spiked in the crisis of 2007/8 which left many investors running for the hills and in need of liquidity seeking it by divestment or recalibration of fiscal stance.Debt Restructure Gains ApprovalTo state the lamentable truth with any veracity there were numerous investment houses that had to use all the had to keep themselves from being swept away in the maelstrom of panicked markets and sudden loss of confidence. This leveraging of assets was perfectly sensible for those concerned at the time but the birds so optimistically loosed at the time have now begun to come home to roost and the results are less than favorable.
• Caesars gets the support it needs despite disagreements
• Long negotiations result in positive outcome
• Bond sale heralds start of filing for Chap. 11 bankruptcy
Caesars Entertainment Operating Company, for instance, is saddled with a debt now estimated to be around $18.4 billion dollars after a massive $30 billion dollar buyout at the time of crisis. This means that at present the company is liable for an annually repetitive interest payment on that debt of something in the region of $1.7 billion, the sustainability of which is questionable under even prime economic conditions that at present do not prevail.
Naturally that has led to the impending filing for Chapter 11 bankruptcy which has left investors being lobbied for a project of debt restructuring that would streamline the process of bankruptcy for which it required, in essence although not necessarily in practice, a two thirds majority of the players involved to voice their consent and act accordingly. This move has been widely seen as a positive move against the backdrop of recent market shifts, and Caesars is making good progress in the program.
BlackRock Comes In From The Cold
BlackRock selling off $500 million of first-lien bonds to those supporting this new restructuring plan indicates the degree to which there is a will to make the necessary adaptations but that support still hovers around the 60% mark just a little way short of the mark. However despite that small shortfall at the current time one can be generous of prediction in thinking they will attain the required level of support amongst bond holders, share holders and the companies that control Caesars.The restructuring would reduce overall debt to $8.6 billion that would lessen interest payments to an almost manageable $450 million a year, and the wrangling over the details behind the program have been lengthy with TPG and Apollo far more forward than the now less than reticent BlackRock. These negotiations have seemingly now been settled with a definite air of need rather than desire amongst those at the table. With the deal signed the future is far less uncertain, but there are still some question marks.
The recovery of Las Vegas has prompted alarm bells amongst investors that were already chiming hard following the year of doom suffered by Atlantic City. Vegas has diversified and that shows in the reasons for people visiting and the numbers of those doing so, and when gambling isn't the biggest draw or attraction in the gambling capital of the world there is reason to believe that a new dynamic is at play, one that might well spell out the need for further restructuring in the future.
With competition from the gleaming spires of Macau and the rise of those who like internet betting in the US for it's ease, convenience and security, these investors are still taking a huge gamble, but that they are willing to do so at all speaks volumes not only about the gaming sector in the US but the economy as a whole and the closer we get to the 2016 the more salient that will become not just for average Americans but also for the casino investors.
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