Caesars Entertainment Stock Slides as Creditor Pact Expires
Caesars Entertainment stock may face a continuing rough road in the days ahead as new financial difficulties loom, centering on the ongoing bankruptcy proceedings for the company’s primary operational unit.
Over the past week, the share price for Caesars (CZR) tumbled about 20% on two market-impacting developments: The expiration of a creditor pact that had forestalled certain creditor groups from taking legal action as Caesars negotiated with other creditors, and news that those other negotiations have been, for the large part, fruitless.
Bloomberg Business reported that no new talks have occurred in weeks between Caesars and a group of second-lien creditors, whose investment in Caesars would be largely wiped out if Caesars is allowed to go forward with its preferred bankruptcy plan for its Caesars Entertainment Operating Company (CEOC) unit. That impasse, combined with the expiration of the no-sue deal with the separate creditor group triggered last week’s stock price, which dipped roughly 20% on the week.
Caesars stock still has plenty of room to tumble, pending developments in several creditor-group lawsuits that are still pending. Last week’s slide took the share price for CZR from the low-$9 to low-$7 range, but the mid-September price above $9 was itself a sharp climb from Caesars’ 2015 low of less than $5, back when the very same creditor disputes and lawsuits emerged.
And now those disputes are at the forefront again, with a lot at stake. If the courts hearing various parts of Caesars’ bankruptcy battles side with the aggrieved creditors, then all of Caesars will likely be forced into bankruptcy, instead of just the CEOC unit into which parent CZR has shuffled most of its bad debt.
The impasse itself is interesting, with Bloomberg and other business sources reporting that the two sides were about $2 billion apart when negotiations collapsed, out of more than $5 billion owed to the second-lien group. Caesars’ plan was to pay the second-lien group a mere pittance, less than one-fifth of what they are owed, while allowing control of the debt-reduced Caesars to remain primarily with the two private-equity groups who bought the company (then Harrah’s) was back in 2008: Apollo Global Management LLC and TPG Capital Management LP.
The aggrieved second-lien shareholders want none of that, believing that Apollo and TPG should bear a large share of the financial burden for failing to turn around the company’s, rather than shunting off those losses on the second-lien group. And if those shareholders prevail, then all of Caesars’ properties and brands could be on the selling block. Caesars and its various entities operate some 50 casinos, seven golf resorts, plus brands such as the World Series of Poker and Caesars Interactive, the company’s online face.
An October 7th hearing in a New York lawsuit filed by several of the second-lien creditors is the next important step in the process; CZR stock is likely to continue to take a beating in the days until that hearing occurs. That lawsuit centers on the terms and conditions of a previous repayment plan which Caesars subsequently failed to honor. Caesars hopes to evade that earlier obligation, which could play a role in unraveling the restructuring that formed CEOC and a separate property holding company. If that unraveling occurs, then the Caesars-wide bankruptcy is the likeliest result.