To the outside world, it may seem like owning a casino is the next best thing to printing money, but as the number of casino failures over the years shows, that's not the case. The potential bankruptcy of Caesars Entertainment (NASDAQ:CZR) is a case in point, as the company tried to offload a lot of its debt onto a subsidiary that is in the throes of collapsing, and not to the liking of the bondholders.
In this clip from the Industry Focus: Consumer podcast, Motley Fool analyst Vincent Shen and contributor Seth McNew go over the background of Caesars Entertainment -- including its troubled financial history and how it sought to save itself -- and then talk about how the company might yet recover from this rough blow.
A full transcript follows the video.
This podcast was recorded on June 28, 2016.
Seth McNew: Caesars is the most interesting company in Vegas right now. Everything they're going through with their potential bankruptcy is just fascinating to watch, every single week.
Vincent Shen: Can you give us, and the listeners who maybe haven't been following this, a quick rundown of what's going on?
McNew: Sure. I think, with Caesars, they only went public in 2010, and that's because, in 2008, they were bought out. So they were already under some $25 billion in debt. And they just weren't able to make it. They missed on Macau, they missed on all these growth opportunities, so they've just struggled. And then, in 2014, they started shuffling these liabilities into their subsidiary called CEOC. Then, in 2015, they let that go bankrupt. So now, all these bondholders are saying, "That's not fair, we're going to sue," so they started this lengthy battle, and it's been in the courts ever since.
The most interesting part is that one of the auditors, or whoever it is from the bankruptcy court who has to investigate this, came out with this scathing report about how it looks like Caesars is going to owe a lot of money to these bondholders. So he's giving them a certain amount of time that they're able to negotiate with the bondholders.
Shen: OK. Any view that a company coming out of this will be able to refocus and strengthen for its business? Or do you think that right now the situation is still too tentative and uncertain?
McNew: It's pretty uncertain. It looks like they weren't going to be able to find a settlement with the bondholders. If that's the case, and the bondholders win their suit, the parent company is likely going to go bankrupt as well. And in that case, we'll see what rises from the ashes. If they are able to settle, and they're able to let CEOC go by the way and the parent company continue on, Caesars actually owns an incredible number of properties and a lot of assets that it looks like it could probably turn into another powerful company.
Bradley Seth McNew has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool is short Caesars Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.