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Rating Action:

Moody's upgrades Caesars Entertainment's CFR to Caa1; rating outlook stable

Global Credit Research - 26 Mar 2012

Approximately $11.5 billion of rated debt affected

New York, March 26, 2012 -- Moody's Investors Service today upgraded Caesars Entertainment Corp's (Caesars) Corporate Family Rating (CFR) and Probability of Default Rating both to Caa1 from Caa2. Moody's also upgraded Caesars Entertainment Operating Company, Inc.'s (CEOC) first lien debt to B2, its second lien debt to Caa2, and its unsecured guaranteed notes, and unsecured notes both to Caa3. The rating outlook is stable. Moody's also upgraded Caesars' Speculative Grade Liquidity Rating to SGL-1 from SGL-2. This concludes the review of Caesars' ratings for possible upgrade that began on February 7, 2012.

The upgrade of Caesars' ratings reflects very good liquidity, an improving operating outlook for gaming in a number of the company's largest markets that is expected to drive earnings growth, the completion of a bank amendment that resulted in the extension of debt maturities to 2018 from 2015, and the public listing of the company's equity that increases financial flexibility by providing it with another potential source of capital. The upgrade of the SGL rating reflects minimal debt maturities over the next few years, significant cash balances (approximately $900 million at December 31, 2011) and revolver availability that will be more than sufficient to fund the company's cash interest and capital spending needs.

RATINGS RATIONALE

Caesars' Caa1 CFR continues to reflect the company's high leverage (consolidated debt/EBITDA of 11.9 times), and low interest coverage (consolidated debt/EBITDA around 1.0 time), tempered by very good liquidity. Although Caesars is expected to generate negative free cash flow, the company maintains sufficient cash and revolver availability to meet its near term obligations for interest, capital spending and debt maturities (aggregating $280 million through 2014.) The company's $1.13 billion revolving credit facility ($1.1 billion of which expires in 2014 and $25 million expires in 2017) remains undrawn and available.

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 $8.0 billion in 2015.

Moody's expects consolidated revenue growth and improving margins from operating leverage and cost efficiencies will result in a modest reduction in debt to EBITDA over the next 12 -- 18 months (to about 10.5 times). The recent amendment to the company's senior secured bank facilities pushed approximately $1.9 billion of 2015 debt maturities to January 28, 2018 or April 14, 2017 if more than $250 million of the company's $2.1 billion 11.25% senior secured notes due 2017 remain outstanding on that date.

The rating outlook is stable reflecting Caesars' very good liquidity and Moody's view that stabilizing operating trends in Las Vegas and a number of regional gaming markets will give the company's earnings a boost over the next year resulting in a modest improvement in credit metrics. 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. Caesars' ratings could be downgraded if the recovery in gaming revenues across the company's major markets stalls or if credit metrics fail to improve from current levels.

Rating affirmed:

Caesars Operating Escrow LLC and Caesars Escrow Corporation assumed by Caesars Entertainment Operating Company, Inc.

$1.25 billion first lien notes due 2020 at B2 (LGD 3, 30%)

Ratings upgraded:

Caesars Entertainment Corporation (CEC)

Corporate Family Rating to Caa1 from Caa2

Probability of Default Rating to Caa1 from Caa2

Speculative Liquidity Rating to SGL-1 from SGL-2

Caesars Entertainment Operating Company, Inc. (CEOC)

Senior secured guaranteed revolving credit facility to B2 (LGD 3, 30%) from B3 (LGD 3, 30%)

Senior secured guaranteed term loans to B2 (LGD 3, 30%) from B3 (LGD 3, 30%)

Senior secured notes guaranteed notes to B2 (LGD 3, 30%) from B3 (LGD 3, 30%)

Senior secured second priority notes to Caa2 (LGD 5, 80%) from Caa3 (LGD 5, 80%)

Senior unsecured guaranteed by operating subsidiaries and CEC to Caa3 (LGD 6, 93%) from Ca (LGD 6, 93%)

Senior unsecured debt guaranteed by CEC to Caa3 (LGD 6, 95%) from Ca (LGD 6, 95%)

Harrah's Operating Escrow LLC and Harrah's Escrow Corporation assumed by CEOC

Senior secured notes to B2 (LGD 3, 30%) from B3 (LGD 3, 30%)

Newco - Octavius Borrower

$450 million senior secured term loan to B2 (LGD 3, 30% from B3 (LGD 3, 30%)

The principal methodology used in rating Caesar's Entertainment Corp. 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 (CET), through its wholly-owned subsidiary, Caesars Entertainment Operating Company, Inc. (CEOC), owns or manages approximately 52 casinos. The company generates annual revenue of about $8.8 billion.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Peggy Holloway
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Kendra 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 Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Caesars Entertainment's CFR to Caa1; rating outlook stable
No Related Data.

 

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