Caesars Entertainment Corp. continues to hemorrhage cash.
Already struggling to service nearly $23 billion in debt, Caesars posted a $908 million loss in the third quarter of the year, according to a company press release in conjunction with its usual financial reports to the Securities and Exchange Commission. The loss comes despite bringing in over $2.21 billion in net revenues, which was only slightly shy of the $2.24 billion that had been estimated.
Most troubling for investors were figures reported for the basic and diluted loss per share, which came to $6.29. This was a much higher figure than the market expected, and the price of the company’s stock (NASDAQ – CZR) has been declining steadily since the release on the news.
Debt Continues to Be a Huge Problem For Caesars
Caesars sought to downplay the significance of the data in the press release, highlighting lower than expected returns on marketing costs. Specifically, the company pointed to increased costs associated with guest retention following the closure of the Showboat Casino in Atlantic City earlier this year.
We have commenced formal discussions with several groups of creditors related to our collective efforts to improve the financial condition of CEOC. We are keenly focused on deleveraging at CEOC and we refer you to our Form 10-Q to be filed later this week for a further discussion of CEOC’s capital structure and liquidity position,” noted the press release.
The Las-Vegas Review Journal reports that the company has the highest debt burden in the casino industry at $23 billion. As part of an overall debt reduction strategy, Caesars underwent a restructuring in May of this year. The plan has seen limited success, providing at least some leeway to raise new debt thanks to debt retirement in 2015, in addition to making good on another $800 million due in 2016.
Financial Analysts Are Increasingly Wary
The data in this recent filing, combined with the large debt burden the company continues to be saddled with, has many financial analysts warning investors to stay away from Caesars stock.
Barbara Cappaert, an investment expert with KDP Investment Advisors, highlighted continuing uncertainty surrounding the company in a research note published on Tuesday. She stated that, “Caesars remains a mess to analyze,” and said her assessment of the situation is that, “the focus by the company will be on pushing to consummate a restructuring.”
Coming down from a high of over $20 in June, the stock price has now nearly been halved and is currently trading around the $11 mark.
Agreement on Chapter 11 Bankruptcy Reached
Under the leadership of CEO Gary Loveman, the company has shown remarkable resiliency in the capital markets. Despite its debt load and lack of profitability, new investors have been found time and time again. Nevertheless, rumors of a Chapter 11 bankruptcy filing have been swirling around Caesars for some time now.
Now, that has become a reality.
Two people with inside knowledge of the negotiations between Caesars Entertainment and its senior creditors have divulged that an agreement between them for a prearranged bankruptcy to be undertaken as soon as January 14th has been reached, Bloomberg News reported.
Discussions between the two had reportedly centered around assurances that cash promised from the company to the creditors could be undertaken in such a way that they could not be challenged by less senior creditors in the bankruptcy proceedings.
However, because the transfer of assets and cash will occur 90 days before the commencement of court proceedings, the creditors seem to be assuaged that they will be shielded from competing claims. Therefore, it is also likely that this will result in less-senior creditors of the company recovering little of their investment moving forward.