Las Vegas-based casino conglomerate Caesars Entertainment Operating Co. (CEOC) is facing a pretty sticky situation, as it becomes clear that the company is millions of dollars in debt — and may not be able to settle its debts in time to avoid a Chapter 11 bankruptcy. According to Cincinnati.com, the corporation is about $25 million in debt, and has had to close three different casinos within the past year.
To make matters worse, the company recently announced that it would be skipping a $225 million interest payment, due on December 15 to one of its junior creditors, making it “the most indebted U.S. casino operator,” according to Bloomberg Businessweek‘s Laura J. Keller. A recent Reuters article adds that this missed interest payment brings Caesars’ total debt to about $18.4 billion.
Caesars has now entered a 30-day grace period, Keller explains, during which company executives will have to set up a restructuring agreement with senior bondholders, to whom the majority of the interest payments are owed. The company has reportedly been working with these bondholders since 2009 and attempting to reach restructuring agreements, but it’s not surprising that no agreements have been successful, considering that the company has been losing money every year since.
Although the gambling industry has been able to make a steady comeback since its sudden decline in 2007 during the Great Recession, it’s clear that Caesars hasn’t had much luck in the industry. Back in 2008, CEOC was was bought out by Apollo Global Management LLC and Texas Pacific Group Capital for $30.7 billion; this change in ownership, experts note, seems to have only added to CEOC’s financial mess.
Now, after about seven years of financial struggling, it’s becoming clear that CEOC will likely end up in a Delaware bankruptcy court by the beginning of 2015, and will have to file under Chapter 11 proceedings. Not only will its creditors receive much less than what is owed — one financial analyst told Cincinnati.com that the creditors will likely receive about 80% of their money, in the best case scenario — but the futures of 52 casinos, owned and operated by CEOC, will hang in limbo, and may even have to shut down.
“Chapter 11 is a type of bankruptcy designed primarily for business reorganization. In the case of the casino that is being discussed, it would be extremely complicated and expensive,” says Charles Huber of the Law Office of Charles Huber. “Nevertheless, it would give ownership a chance to see if they can restructure the business debt in a way that would allow the company to be profitable going forward. It would give management a chance to make an honest assessment of what if anything can be done to make the company profitable again.