Caesars Entertainment Corp's Reshuffling Doesn't Hide Massive Debt Load

Caesars Entertainment Corp (NASDAQ: CZR  ) continues to swim in red ink, and its management continues to make the business so complicated that it's hard to decipher improvement from decline. The company's overall net revenue was up 3.2% in the fourth quarter, to $2.08 billion, but net loss exploded to $1.75 billion. The problem is, that hardly tells the story of Caesars.

After recent maneuvering, Caesars consists of three companies: Caesars Entertainment Operating Company, Caesars Entertainment Resort Properties, and Caesars Growth Partners, which is part-owned by Caesars Acquisition Company (NASDAQ: CACQ  ) . We have to take some of the operating results piece by piece. 

Caesars Entertainment owns nearly half of the Las Vegas Strip, its best operating assets.

Caesars protects assets with new structure
During the past year, Caesars has been pushing assets down to subsidiaries like Caesars Entertainment Resort Properties and Caesars Growth Partners. The former now owns the Harrah's Atlantic City, Harrah's Las Vegas, Paris, Flamingo, Rio, Octavius Tower at Caesars Palace, and Project Linq real estate assets in Las Vegas. Caesars Growth Partners owns Planet Hollywood, Caesars' online gaming assets, and recently announced the acquisition of Bally's Las Vegas, The Cromwell, The Quad, and Harrah's New Orleans for $2.2 billion.

The shift of assets leaves much of the debt with Caesars Operating Company, which would leave value with those companies if Caesars Operating Company files for bankruptcy. At least that's what management thinks, but it would likely be a huge fight for assets if bankruptcy does ensue. 

Caesars has mixed results nationwide
Back to earnings, the results for Caesars are decidedly mixed. Casino revenues fell 5.1% last quarter on a decline in regional gaming, but room revenue was up 6.4% on higher room rates in Las Vegas. But if we take a more detailed look at results, we see why some of Caesars's best assets are ending up in new subsidiaries.

As Las Vegas has recovered, it's high-end properties like Palazzo and Wynn (seen here) that have won back customers faster than Caesars.

Net revenue in Las Vegas was up 7.6%, to $799.4 million, and EBITDA was up 8.5%, to $235.2 million. Stronger casino play along with resort fees at the company's properties helped results in the quarter. 

The Atlantic Coast region saw revenue fall slightly to $334.0 million, but EBITDA was down 61%, to $11.3 million, and a massive writedown resulted in a whopping $1.9 billion loss from operations. If there's an area that will drag down the operating company, it will be Atlantic City and the rest of regional gaming. 

Other locations around the U.S. saw revenue fall 4.7%, to $681.9 million, and EBITDA fall 17.7%, to $135.2 million. This region includes properties in Biloxi, Lake Tahoe, New Orleans, Kansas City, Iowa, and elsewhere, and is nearly the size of Las Vegas. But it's deteriorating quickly as competition eats away at market share, and Caesars fails to win bids in new lucrative regions like Boston and Pennsylvania.

Caesars as we know it is in trouble
On Caesars' consolidated balance sheet, the company has an incredible $21.1 billion in debt, resulting in $575.3 million in interest expenses last quarter. That compares to property EBITDA, a proxy for cash flow, of $406.3 million, meaning that, as a whole, Caesars is burning through cash at a rapid rate.

Most of the cash burn is in Caesars Entertainment Operating Company, which needs to refinance to reduce debt or risk going into bankruptcy.

The only stock even worth looking at in this group is Caesars Acquisition Company, but even that's high-risk because online gaming is its biggest asset, and that's not legal nationwide.

Overall, Caesars is a mess, and I'd stay away from the entire group right now. Its private equity owners hold all the cards and are reorganizing the company to squeeze as much value for their investors as they can. That doesn't mean it will end well for you.

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