News Column

Fitch: Showboat Closure Possibly Bad for Caesars OpCo Creditors

June 27, 2014



NEW YORK--(BUSINESS WIRE)-- Caesars Entertainment Corp.'s (Caesars) closure of its Showboat casino in Atlantic City is potentially a negative for Caesars Entertainment Operating Co. (CEOC) creditors as some business could be displaced, according to Fitch Ratings. Business could translate from CEOC to Caesars Entertainment Resort Properties' (CERP) Harrah's casino.

Harrah's is Caesars' biggest resort in Atlantic City and underwent a $500 million renovation and expansion in 2008. Caesars is now building a convention center near Harrah's, which is being funded by the parent company.

The closure makes financial sense for Caesars and is a positive for the oversupplied Atlantic City market. Showboat has about $50 million in labor costs and pays about $15 million in property tax (although Caesars is appealing Showboat's $625 million assessed value). Caesars will likely recapture most of the Showboat customers at its three other resorts in Atlantic City.

Showboat generated $187 million in net revenues and $28 million in EBITDA for the LTM period ending March 31, 2014. Fitch believes it would be difficult for Caesars to sell Showboat on an EBITDA multiple basis given the history of operating declines at Caesars' properties once they are sold and pulled from the Total Rewards database, as well as the unfavorable operating environment in Atlantic City. CEOC's other casinos in Atlantic City - Bally's and Caesars AC - could benefit from the closure. However, Caesars will have discretion over how it allocates its customers among properties and may favor Harrah's, which is part of the financially healthier CERP. The Issuer Default Rating (IDR) assigned to CERP by Fitch is 'B-', compared to CEOC's 'CC' IDR, which indicates that a default is probable.

We believe the closure of Showboat will be more contentious among CEOC's creditors than the closure of CEOC's Harrah's Tunica, which closed earlier this month. Showboat is generating positive EBITDA (Harrah's Tunica's EBITDA was not disclosed) and the move has the potential to move business away from CEOC to CERP.

CEOC's EBITDA base could be further diluted if Caesars buys Revel. Caesars is among companies speculated to bid for Revel in the bankruptcy auction scheduled for August 6. A potential scenario could be Caesars purchasing Revel and re-segmenting its Total Rewards database among its three remaining properties and Revel. Caesars recent acquisitions were made outside of CEOC, notably by the newly formed Caesars Growth Partners.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Fitch Ratings

Alex Bumazhny, +1 212-908-9179

Director

Corporates

or

Kellie Geressy-Nilsen, +1 212-908-9123

Senior Director

FitchWire

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Media Relations:

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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