New York, December 05, 2012 -- Moody's Investors Service assigned a B2 rating to the proposed $300 million senior secured notes due 2020 issued by Caesars Operating Escrow LLC and Caesars Escrow Corporation due 2020 to be assumed by Caesars Entertainment Operating company, Inc. (CEOC). Moody's affirmed Caesars Entertainment Corporation's (Caesars) Caa1 Corporate Family Rating and changed the rating outlook to negative. Additionally, Moody's lowered Caesars' Speculative Grade Liquidity rating (SGL) to SGL-2 from SGL-1.
The change in rating outlook to negative reflects our view that Caesars' operating results will not meet Moody's previous expectations as a result of slowing same store gaming revenues through August across many regional U.S. markets in which Caesars participates followed by declines in September and October. While the Las Vegas region (about 40%% of property EBITDA) is holding its own, a number of key regional markets, including Atlantic City, Mississippi/Louisiana, and Indiana/Illinois (collectively about 36% of property EBITDA) have reported declining gaming revenues in September and October. Moody's is concerned that US consumer spending on gaming will remain under pressure in 2013 given generally soft economic data and fiscal tightening making it difficult for Caesars to increase earnings and improve debt/EBITDA to the mid-point of Moody's range of 10.5 times. On an trailing twelve month basis through September 30, 2012, debt/EBITDA was 11.9 times and EBITDA/interest was 0.9 times.
The downgrade of Caesars' SGL rating reflects a decline in revolver commitments to about $520 million as a result of amend and extend transactions whereby lenders converted unused revolver commitment into term loans in exchange for a 50% reduction in the committed amount. This revolving capacity is thin relative to the scale of the company's operations and its negative free cash position. Nevertheless, Caesars' cash balances along with remaining revolver availability is sufficient availability to enable the company to meet its near term obligations for interest, capital spending and debt maturities that Moody's estimates to be in aggregate approximately $2.7 billion in 2013.
Caesars' Caa1 Corporate Family Rating reflects the company's high leverage (consolidated debt/EBITDA of 11.9 times), and low interest coverage (EBITDA/interest expense of around 0.9 times), tempered by good liquidity. Caesars' Caa1 rating also recognizes the risk that the company may again pursue transactions that Moody's would consider to be distressed exchanges particularly in light of large debt maturities of about $6.5 billion in 2015 (including CMBS debt).
Caesars Operating Escrow LLC and Caesars Escrow Corporation due 2020 to be assumed by Caesars Entertainment Operating company, Inc.
Approximately $300 million senior secured notes due 2020 at B2 (LGD 3, 31%)
Ratings affirmed and assessments updated where applicable:
Caesars Entertainment Corporation
Corporate Family Rating at Caa1
Probability of Default Rating at Caa1
Caesars Entertainment Operating Company, Inc. (CEOC)
Senior secured guaranteed revolving credit facility at B2 (LGD 3, 31% from 30%)
Senior secured guaranteed term loans at B2 (LGD 3, 31% from 30%)
Senior secured notes at B2 (LGD 3, 31% from 30%)
Senior unsecured guaranteed by operating subsidiaries and CEC at Caa3 (LGD 6, 93% from 92%)
Senior unsecured debt guaranteed by CET at Caa3 (LGD 6, 95%)
Harrah's Operating Escrow LLC and Harrah's Escrow Corporation assumed by CEOC
Senior secured notes at B2 (LGD 3, 31% from 30%)
Senior secured second priority notes at Caa2 (LGD 5, 82% from 80%)
Corner Investment Propco, LLC
$180 million senior secured 7-year term loan at B2 (LGD 3, 31% from 30%)
$450 million senior secured term loan at B2 (LGD 3, 31% from 30%)
Speculative Grade Liquidity rating to SGL-2 from SGL-1
Caesars' ratings could be downgraded if its liquidity position deteriorates, if recent negative trends in monthly gaming revenue in the company's major markets continue to decline or if credit metrics fail to improve from current levels. Given Caesars' high leverage and weak interest coverage and the need to address significant debt maturities in 2015, we do not anticipate upward rating momentum in the absence of a material reduction in leverage.
The principal methodology used in rating Caesars Entertainment Corporation was the Global Gaming Industry Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Caesars Entertainment Corporation, through its wholly-owned subsidiary, CEOC, owns or manages approximately 50 casinos. The company generates consolidated revenues of about $9 billion annually.
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Peggy Holloway VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Kendra M. Smith MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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