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Rating Action:

Moody's downgrades Eldorado Resorts CFR to B2, rates new debt for Caesars acquisition; outlook negative

17 Jun 2020

New York, June 17, 2020 -- Moody's Investors Service, ("Moody's") downgraded Eldorado Resorts, Inc.'s ("Eldorado" or "ERI") Corporate Family Rating ("CFR") to B2 from B1 and Probability of Default Rating to B2-PD from B1-PD. Moody's assigned a B1 rating to the company's proposed $3.080 billion senior secured notes and a Caa1 rating to the company's proposed $1.875 billion senior unsecured notes. The company's Speculative Grade Liquidity rating remains SGL-1 and the outlook was changed to negative.

Moody's additionally downgraded Caesars Resort Collection, LLC's ("CRC") Corporate Family Rating ("CFR") to B2 from B1 and Probability of Default Rating to B2-PD from B1-PD. The company's existing senior secured revolving credit facility and term loan B were downgraded to B1 from Ba3 and existing senior unsecured notes to Caa1 from B3. Moody's assigned a B1 rating to the company's proposed $1.47 billion senior secured term loan B and $1.050 billion senior secured notes. The company's SGL-1 Speculative Grade Liquidity rating was withdrawn, and the outlook was changed to negative.

The rating actions conclude the reviews for downgrade initiated on ERI and CRC in June 2019.

Proceeds from the proposed senior secured term loan, senior secured notes, and senior unsecured notes, along with new ERI shares issued to CEC, ERI and CEC cash, lease and asset sale proceeds, and ERI equity raise proceeds, will be used to finance Eldorado Resorts acquisition of Caesars Entertainment Corp ("CEC"), refinance debt at Caesars Entertainment Op Co LLC ("CEOC"), CRC's sister company, as well as pay related fees and expenses. The transaction is expected to close in July 2020 subject to customary closing conditions, including approval by gaming regulators and the Federal Trade Commission. As part of the transaction, CEOC will be contributed into CRC, with CRC as the surviving entity and borrower.

The ratings on Eldorado's existing senior secured credit facilities and senior unsecured notes remain unchanged and will be withdrawn upon the closure of the transaction as they will be refinanced. The Corporate Family Rating and Probability of Default Rating of Caesars Resort Collection, LLC will be withdrawn upon the closing of the transaction. All rated debt of Caesars Entertainment Op Co LLC ("CEOC") is expected to be repaid in association with the transaction. As a result, all ratings at CEOC will be withdrawn at that time including the company's B1 CFR.

The downgrade of the Eldorado and CRC CFRs to B2 considers the increase in debt to support the acquisition of CEC, including the risks associated with integration and execution of the acquisition. The downgrade also reflects the disruption in casino visitation resulting from efforts to contain the spread of the coronavirus including recommendations from federal, state and local governments to avoid gatherings and avoid non-essential travel. These efforts included mandates to close casinos on a temporary basis. While casinos have begun to reopen, the ramp up and sustainability in operations is unclear at this point. The downgrade also reflects the negative effect on consumer income and wealth stemming from job losses and asset price declines, which could diminish discretionary resources to spend at casinos once this crisis subsides.

Moody's assessment of Eldorado is based on a consolidated approach. Eldorado and Caesars Resort Collection, LLC, the surviving Caesars entity with rated debt, will not guarantee each other's debt. The rating and outlook rationale for ERI as well as the upgrade and downgrade considerations below apply collectively to ERI and CRC. A cross default is expected at Eldorado given CRC's debt will be considered material indebtedness, as CRC will be part of Eldorado's restricted group and included in covenants contained in Eldorado's credit agreement. The CRC debt will not cross default to Eldorado's debt. Moody's notes that the entities have common ownership, management, operational functionality, and ability for cash to be readily moved between the entities to support operations and debt reduction. Debt instrument ratings at Eldorado and CRC are based on the priority of claim and recovery estimates given they have differing claims on the Eldorado and CRC asset pools. Moody's expects the company's focus will be repaying debt at CRC and this could potentially result over time in CRC secured and unsecured debt being notched above the respective secured and unsecured debt at Eldorado.

Assignments:

..Issuer: Caesars Resort Collection, LLC

....Gtd Senior Sec Term Loan B, Assigned B1 (LGD3)

....Senior Secured Notes, Assigned B1 (LGD3)

..Issuer: Eldorado Resorts, Inc.

....Senior Secured Notes, Assigned B1 (LGD3)

....Senior Unsecured Notes, Assigned Caa1 (LGD6)

Downgrades:

..Issuer: Caesars Resort Collection, LLC

....Corporate Family Rating, Downgraded to B2 from B1

....Probability of Default Rating, Downgraded to B2-PD from B1-PD

....Gtd Senior Secured Term Loan B, Downgraded to B1 (LGD3) from Ba3 (LGD3)

....Gtd Senior Secured Revolving Credit Facility, Downgraded to B1 (LGD3) from Ba3 (LGD3)

....Gtd Senior Unsecured Global Notes, Downgraded to Caa1 (LGD6) from B3 (LGD5)

..Issuer: Eldorado Resorts, Inc.

....Corporate Family Rating, Downgraded to B2 from B1

....Probability of Default Rating, Downgraded to B2-PD from B1-PD

Withdrawals:

..Issuer: Caesars Resort Collection, LLC

....Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-1

Outlook Actions:

..Issuer: Caesars Resort Collection, LLC

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Eldorado Resorts, Inc.

....Outlook, Changed To Negative From Rating Under Review

RATINGS RATIONALE

Eldorado Resorts Inc.'s (ERI) B2 Corporate Family Rating reflects the company's high leverage level following the acquisition of Caesars. Debt-to-EBITDA leverage is expected to be high at near 7.5x in 2021 on a consolidated basis. Integration of the businesses and realizing synergies, both on the cost and revenue side, are key to reducing leverage and improving cash flow. The meaningful earnings decline from efforts to contain the coronavirus and the potential for a slow recovery as properties reopen also remains a key constraint. Eldorado benefits from the size and diversification of its operations, which is further enhanced in terms of scale when including Caesars, both on the Las Vegas Strip and regionally. The acquisition of Caesars will allow the company to broaden and enhance its rewards program and capitalize on the Caesars brand name, including in the developing sports betting and igaming markets.

ERI's credit profile also reflects the company's very good liquidity as reflect in the SGL-1 rating. The combined company will have roughly $850 million of pro forma cash at close ($125 million at Eldorado) and approximately $1.6 billion of available revolver capacity ($1 billion at Eldorado) and no meaningful debt maturities over the next year.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The gaming sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in the combined ERI/CRC credit profile, including its exposure to travel disruptions and discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and ERI and CRC remain vulnerable to the outbreak continuing to spread.

Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The ratings of ERI and CRC reflect the impact, breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

Governance considerations include Moody's expectation that Eldorado will focus on reducing debt and leverage. Eldorado's absence of a dividend ensures more free cash flow is available for debt reduction and to fund investments.

The negative outlook considers that ERI remains vulnerable to travel disruptions and unfavorable sudden shifts in discretionary consumer spending and the uncertainty regarding the timing of all facility re-openings and the pace at which consumer and commercial spending at the company's properties will recover.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

Ratings could be downgraded if liquidity deteriorates or if Moody's anticipates Eldorado's earnings declines to be deeper or more prolonged because of actions to contain the spread of the virus or reductions in discretionary consumer spending. Ratings could be downgraded if the company is not able to reduce debt-to-EBITDA leverage to 8.0x by 2021 on a consolidated basis.

A ratings upgrade is unlikely given the weak operating environment and expectation for leverage to spike in 2020. However, the ratings could be upgraded if the facilities reopen and earnings recover such that comfortably positive free cash flow and reinvestment flexibility is restored and debt-to-EBITDA is sustained below 6.5x.

Eldorado Resorts, Inc. owns and operates gaming properties in 11 states: Nevada, Colorado, Iowa, Mississippi, Missouri, Florida, Ohio, New Jersey, Louisiana, Illinois, and Indiana. Revenue for the latest 12-month period ended March 31, 2020 was about $2.4 billion. On a pro-forma basis for the acquisition of Caesars, the company operated 48 gaming properties and managed an additional 6 gaming properties in the United States. Pro forma combined revenue for the 12 months ended March 2020 was $10.9 billion.

The principal methodology used in these ratings was Gaming Industry published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1099757. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Adam McLaren
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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