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What: Shares of Caesars Entertainment Corp (NASDAQ:CZR) plunged 14% early in trading today as the gaming giant careens closer and closer to bankruptcy.
So what: Caesars subsidiary Caesars Entertainment Operating Company is in bankruptcy and the company and creditors are fighting over who has rights to what and whether the company's action to split the company into multiple subsidiaries was legal or not. Late last week, a judge said she could be asked to rule whether the parent company will be responsible for $750 million owed to creditors through the bankrupt unit. If it is responsible, we could see Caesars Entertainment file for bankruptcy protection pre-emptively to shield the company from other guarantees related to the subsidiary.
Now what: I've been saying literally since the day it went public that Caesars Entertainment is a stock that was headed for disaster and after over three years that narrative is playing out. Given the questionable transactions that went into creating the Caesars family of companies we see today I think creditors will win in court and the parent company will eventually be pulled into bankruptcy. If that's the case, shareholders will be left with little to no value, which is why I would avoid this stock at all costs, especially after the news that is sending shares lower today.
Travis Hoium owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.