Fitch Ratings has downgraded Caesars Entertainment Operating Company, Inc.'s (CEOC) IDR to 'D' from 'C' while affirming CEOC's issue specific ratings. The downgrade reflects CEOC's missed interest payment on its 10% second-lien notes, yesterday's expiration of the 30-day grace, and today's voluntary bankruptcy filing by CEOC.
As Fitch expected today's filing only includes CEOC. Fitch affirmed other ratings within Caesars Entertainment Corp.'s (CEC) corporate family on Dec. 16, 2014 when CEOC missed the interest payment as Fitch did not believe a filing at CEOC, in of itself, would directly impact CEC or other subsidiaries. The 'CC' IDR of CEC continues to reflect the linkage between CEC and CEOC vis-a-vis CEC's collection guarantee of CEOC's credit facility and the possibility that CEC will be liable under the payment guarantee of CEOC's notes. CEOC announced in May 2014 that it released the guarantee; however, certain first-lien and second-lien noteholders are contesting the release.
Fitch estimates full recovery for CEOC's credit facility lenders, with 87% recovery for the first-lien noteholders and less than 10% recovery for the remainder of the capital structure. The estimate assumes a 9.6x enterprise value (EV)/EBITDA multiple on approximately $850 million EBITDA. The recovery analysis also gives credit to the parent guarantee.
Fitch values the guarantee at $2.8 billion, which is the cash at CEC and CEC's stake in Caesars Growth Partners (CGP) and Caesars Entertainment Resort Properties (CERP). Fitch allocates the value of the guarantee first to CEOC's term loans since loans indisputably retain the guarantee and then allocates it on a pro rata basis to other tranches. The recovery estimates takes into account cash at CEOC (adjusted for cage cash) and an administration claims assumption equal to 10% of EV.
Fitch's administrative claims assumption is somewhat subjective and is approximately $800 million, which is high but not unprecedented. Lehman and Enron liquidation legal and professional fees exceeded $2 billion and $750 million, respectively. The more comparable sized Tribune Co.'s bankruptcy cost more than $500 million.
Fitch takes the following rating actions:
Caesars Entertainment Operating Co.
--Long-term IDR downgraded to 'D' from 'C';
--Senior secured first-lien revolving credit facility and term loans affirmed at 'CCC/RR1';
--Senior secured first-lien notes affirmed at 'CCC-/RR2';
--Senior secured second-lien notes affirmed at 'C/RR6';
--Senior unsecured notes with subsidiary guarantees affirmed at 'C/RR6';
--Senior unsecured notes without subsidiary guarantees affirmed at 'C/RR6'.
Fitch currently rates the other CEC entities as follows:
Caesars Entertainment Corp.
--Long-term IDR 'CC'.
Caesars Entertainment Resort Properties, LLC
--IDR 'B-'; Outlook Stable;
--Senior secured first-lien credit facility 'B+/RR2';
--First-lien notes 'B+/RR2';
--Second-lien notes 'CCC/RR6'.
Caesars Growth Properties Holdings, LLC
--IDR 'B-'; Outlook Stable;
--Senior secured first-lien credit facility 'BB-/RR1';
--Second-lien notes 'B-/RR4'.
Corner Investment PropCo, LLC
--Long-term IDR 'CCC';
--Senior secured credit facility 'B-/RR2'.
Chester Downs and Marina LLC (and Chester Downs Finance Corp as co-issuer)
--Long-term IDR 'CCC';
--Senior secured notes 'CCC+/RR3'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 18, 2014);
--'U.S. Gaming Recovery Models - Third-Quarter 2014' (Dec. 16, 2014);
--'Fitch 50 (Structural Profiles of 50 Leveraged U.S. Credits)' (July 8, 2014);
--'Fitch: Mostly Positive Credit Implications from Caesars Merger Announcement' (Dec. 22, 2014)
--'Fitch Downgrades Caesars OpCO's IDR to 'C' on Missed Payment' (Dec. 16, 2014);
--'Fitch: 80% Recovery Estimated for Caesars OpCo 1st Lien Notes' (Dec. 10, 2014);
--'Fitch: Caesars REIT Plan Good for Recovery, Ch. 11 Still Likely' (Nov. 21, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=813588
U.S. Gaming Recovery Models - Third-Quarter 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=837188
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=970995
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