Buy Photo

Horseshoe Casino Cincinnati in Downtown is among properties managed by Caesars Entertainment Operating Co. Loaded with debt and squeezed by the Great Recession, the Caesars Entertainment subsidiary is in dire financial straits.(Photo: Enquirer file)Buy Photo

Caesars Entertainment Corp., operator of the Horseshoe Casino Cincinnati, is drowning in $25 billion of debt, has closed three casinos this year and admits its largest unit may have to file for bankruptcy.

Las Vegas-based Caesars, which owns or operates 52 casinos worldwide, generated $8.6 billion in revenues in the last 12 months, but it has lost $3.5 billion in that same period. Interest payments alone are more than $2 billion a year.

Analysts say Caesars could see its 20 percent stake in the Horseshoe casinos in Cincinnati and Cleveland come under pressure, but operations will likely continue as usual for now.

"It's in the best interests of everyone if they keep all the casinos open – they are worth more money open than closed," said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.

Buy Photo

After a big opening, Horseshoe Casino Casino Cincinnati hasn’t generated the revenues projected for it. That’s added to a financial for its operator, Caesars Entertainment Operating Co.(Photo: Enquirer file)

Ohio casinos may be shielded from fallout

In government filings, Caesars says the subsidiary, Caesar Entertainment Operating Co., which manages the Ohio Horseshoe casinos and several other properties, will run out of money by fall of 2015 and may have to file for Chapter 11 protection. Analysts believe any bankruptcy will focus on the company's negotiating with bondholders to convert Caesars' IOUs into an equity stake in a reorganized business unit.

Steve Gallaway, partner with casino consulting firm Global Market Advisors, said the Horseshoe casinos in Ohio will likely be shielded from bankruptcy fallout. He said the casinos aren't meeting initial revenue projections but are still performing relatively well compared with casinos across the country.

"Original projections for the Cincinnati Horseshoe were unreasonable, but it's a flagship property – it won't be impacted by a bankruptcy," Gallaway said, adding Caesars could use bankruptcy to unload less desirable properties elsewhere in the country.

Cincinnati's Horseshoe is further protected by the fact that Detroit mogul Dan Gilbert owns the majority stake in the casino. Caesars holds just a 20 percent minority interest and manages it. The only complication to Caesars' deal with Gilbert would be if additional money needed to invest in the properties and the Las Vegas company didn't come through.

Officials with Rock Gaming – the gambling arm of Gilbert's empire – declined to comment.

Caesars officials acknowledge ongoing negotiations with creditors and that a bankruptcy filing is on the table. Still, they stress customers won't see a difference if it occurs. "In the event Caesars Entertainment Operating Co. goes through a reorganization, it would not impact operations of the properties at all," said Gary Thompson, a Caesars spokesman.

Caesars has closed three casinos this year, including the Showboat Atlantic City in New Jersey, Harrah's Tunica in Mississippi and a Golden Nugget in London. Thompson says Caesars' remaining casinos are all profitable.

Buy Photo

Caesars Entertainment Operating Co., a subsidiary of Caesars Entertainment, operates the Horseshoe casinos in Ohio. It’s facing a cash crunch that may force a bankruptcy reorganization.(Photo: Enquirer file)

Investors bet big, but gambling slowed

A bankruptcy by part of Caesars would only be another blow in an industry that has been battered since 2007. U.S. casino gambling peaked in 2007, raking in $37.5 billion that year before tumbling 8.5 percent by 2009. The industry has recovered most of that ground since the Great Recession, but it remains under pressure due to an explosion of states that legalized it and added competition.

A change in ownership at Caesars further put it in a precarious position. Fitch Ratings analyst Alex Bumazhny said debts have haunted Caesars.

Big investors bought out the company for nearly $30 billion in 2008 at the height of the real estate and gambling boom and saddled it with debt. Since then, the company has run a tight ship, but the gambling industry has slowed amid too many new casinos chasing dwindling customer demand in a tough economy. Caesars' revenues have dropped 15 percent from $10.1 billion in 2008 as the industry struggled.

Bumazhny says the business unit may default Monday on a $223 million payment toward one group of bondholders owed $4.5 billion. He predicts first-in-line creditors owed $6.3 billion will recover about 80 percent of their money.

"It's not really a shock – it's been a slow, steady decline since 2008," Bumazhny said, adding he believes a bankruptcy by Caesar Entertainment Operating Co. is "likely."

Read or Share this story: http://cin.ci/1Duop75