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Rating Action:

Moody's lowers Caesars Entertainment's CFR to Caa2, outlook negative

Global Credit Research - 05 Apr 2013

Approximately $15.6 billion of rated debt affected.

New York, April 05, 2013 -- Moody's Investors Service today downgraded Caesars Entertainment Corporation's ("Caesars") Corporate Family Rating and Probability of Default Rating to Caa2, and Caa2-PD, respectively. Moody's also downgraded Caesars Entertainment Operating Company, Inc.'s ("CEOC") first lien debt to B3, its second lien debt to Caa3, and its unsecured guaranteed notes and unsecured notes both to Ca. The rating outlook is negative. The Speculative Grade Liquidity rating of SGL-3 is unchanged.

"The downgrade of Caesars' ratings considers that its same store EBITDA growth in 2012-2013 has failed to materialize to any significant degree, and so Caesars' credit metrics have deteriorated and its free cash flow deficit will be higher than Moody's previous expectations," stated Moody's analyst Peggy Holloway. Caesars has experienced a continuation of negative gaming revenue trends so far in 2013 across most of the company's major markets, as a longer lasting rebound in gaming demand has been derailed again, this time by higher taxes that are reducing consumers' discretionary income.

Moody's estimates that Caesars' will burn cash in fiscal 2013. Assuming flat EBITDA, slightly higher cash interest, required debt amortization of about $170 million, Moody's estimates Caesars will burn about $300 million of its cash on hand plus whatever is spent on capital expenditures (excluding separately financed development projects). "While Caesars currently has sufficient cash on hand to fund the expected deficit -- unrestricted cash is estimated to be about $2.4 billion -- the elusive sustainable rebound in gaming demand suggests Caesars may again pursue transactions that Moody's would deem to be distressed exchanges particularly as the expiration of the CMBS facility approaches in February 2015," added Holloway.

RATING RATIONALE:

Caesars' Caa2 Corporate Family Rating reflects the company's high leverage and low coverage -- consolidated debt/EBITDA is about 13.6 times and consolidated EBITDA coverage of interest is slightly less than one time -- along with the increasing likelihood the company will pursue a transaction that Moody's would deem to be a distressed exchange in the next two years to address what we believe is an unsustainable capital structure.

The negative outlook reflects the challenging operating environment and the anticipated reduction in liquidity as Moody's expects Caesars' free cash flow deficit will widen in 2013. Caesars' ratings could be downgraded if its liquidity position deteriorates further or if gaming demand falls from current levels. Upward rating action is unlikely in the absence of a material deleveraging event resulting in a capital structure Moody's would view as sustainable over the long-term.

Ratings downgraded and assessments updated:

Caesars Entertainment Corporation (Caesars)

Corporate Family Rating to Caa2 from Caa1

Probability of Default Rating to Caa2-PD from Caa1-PD

Caesars Entertainment Operating Company, Inc. (CEOC) and Harrah's Operating Company, Inc. (Old)

Senior secured guaranteed revolving credit facility to B3 (LGD 2, 29%) from B2 (LGD 3, 30%)

Senior secured guaranteed term loans to B3 (LGD 2, 29%) from B2 (LGD 3, 30%)

Senior secured notes to B3 (LGD 2, 29%) from B2 (LGD 3, 30%)

Senior unsecured guaranteed by operating subsidiaries and Caesars to Ca (LGD 6, 92%) from Caa3 (LGD 6, 92%)

Senior unsecured debt guaranteed by Caesars to Ca (LGD 6, 94%) from Caa3 (LGD 6, 95%)

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

Senior secured notes to B3 (LGD 2, 29%) from B2 (LGD 3, 30%)

Senior secured second priority notes to Caa3 (LGD 5, 79%) from Caa2 (LGD 5, 81%)

Corner Investment Propco, LLC

$180 million Senior secured term loan to B3 (LGD 2, 29%) from B2 (LGD 3, 30%)

Octavius Borrower

$450 million senior secured term loan to B3 (LGD 2, 29%) from B2 (LGD 3, 30%)

The principal methodology used in this rating 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.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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.

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.

Margaret B 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 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 lowers Caesars Entertainment's CFR to Caa2, outlook negative
No Related Data.

 

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