Las Vegas Casino Death Watch
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Last updated: April 8, 2014
From the Pretty Much Beating a Dead Horse Department,
& Poors has lowered it's credit rating for Caesars Entertainment
from CCC+ to CCC-, which isn't just a "junk" rating, but pretty
close to the "I can't find a sanitation crew willing to take this
thing off my curb" territory. The article also indicates that S&P
believes that some sort of reorganization has become more likely,
although they don't seem to indicate how likely. Worse, they call
Caesars' capital structure "unsustainable". Without an additional
infusion of cash or sell-off of assets, they may not make it to
the end of 2015 without having to file for bankruptcy.
Gaughan has passed away. I can't call it a tragedy when a man who
was working well into his 80s dies at 93, but it's still a sad day.
Mr. Gaughan as much as anyone shaped the evolution of Las Vegas, especially
downtown. As much a gambling pioneer as he was, what impressed me most
about him was his decency. It may be a cliche to say that we're unlikely
to see someone like Mr. Gaughan again, but it's true. He left an
indelible and positive mark on this town, and his influence will be
have more on the recent financial moves by Caesars. This is an
examination of the moves that Caesars made last week. The analysts
quoted in the article and much of Stutz' commentary on the subject
echos ours. Bottom line: Besides raising some capital to keep the
operation running, another plausible reason for making the move is
to keep some key assets, such as Caesars Interactive, separate in
case the bulk of the company has to file for bankruptcy some day.
From the Way Inside Baseball Department,
is selling some of its casinos to another company with Caesars in its
name. To wit, Bally's Las Vegas, the Quad, Harrah's New Orleans,
and the not-yet-reopened casino now named the Cromwell will be sold for
$2.2 billion to Caesars Growth Partners. It seems that Caesars owners
Apollo and TPG own the majority of Caesars Growth Partners, but not all
of it, so this deal allows them to raise some desperately needed cash.
As a consequence of this, debt rating organization Moody's
announced it's looking carefully at the big Caesars and is considering
downgrading its ratings depending on whether it spends the money
raised by these shenanigans wisely or not.
We'd explain all the implications of this move to you, except that it's
all very complicated involving tax laws, and carried interest, and
depreciation and all that, which is to say, we don't really understand
it all either. But, if it seems to you to be reminiscent of someone
rearranging deck chairs, let's just say you're not alone. Again, we
don't think that an implosion of Caesars is imminent, but it has been
a long time since we've been optimistic about the long term financial
health of Caesars as a company.
We have a projected opening date for the SLS,
Day weekend, 2014. Not being night club types, we're not really
the target demo for the property, but some of the restaurants look
intriguing. In any case, we wish them luck and applaud what we hope
is the beginning of a revitalization of the north Strip.
From the "Here We Go Again" department,
judge has issued an order requiring a delay in demolition of the Harmon
tower. It would also not surprise us in the least if some other
judge issues an order contravening this one. It certainly wouldn't
surprise us if the legal system keeps batting this thing back and
forth like a slightly bored cat for the rest of the year. If we
watch this saga long enough, something might actually happen!
We have a new name for Bill's Gamblin' Hall or Gansevoort Las Vegas
or whatever you want to call the former Barbary Coast.
you ready for "The Cromwell"? Howard Stutz' article at the RJ
says they'll start accepting reservations on February 24, although
they haven't announced an opening day. We thought the idea when
Caesars dumped Gansevoort as a partner was to find another partner?
We don't see any sign of one. We're curious as to why? Did no one
want to parter with Caesars on this?
First, Happy New Year to the Death Watch readership. Second, despite
may reader concerns, we haven't gone anywhere. The reason there
haven't been any posts for a while is that there hasn't been any relevant
news for a while. We don't make the news here, we can only report on
it when it happens. Third,
starting to clear out some refuse from inside the Harmon Hotel in
preparation for its demolition. Honestly, we had expected they
were at least this far along, and we sorta thought the next news we
heard on the building was that they had started the actual deconstruction.
However, this story indicates that it will probably be months yet
before that occurs. Still, our prediction is that this process will
begin some time this year.
Westin Casuarina casino has changed its name to Max Casino. If
your response to this is, "Huh?" don't worry about it. Also, they're
updating their sports book. What, are they adding a chair?
Word is that the Downtown Grand, the former Lady Luck, will open on
October 27 with the official Grand Opening on November 12. Allegedly,
the renovation costs for the casino and development costs for the
surrounding neighborhood runs more than $200 million. Given that
the Golden Nugget's entire sales price in 2005, near the top of
the casino market, was $295 million, and that any other downtown
casino could probably be had for less than $40 million, this is a
big bet in a market that hasn't proven it can support this property.
Nonetheless, we're interested in taking a look at this place and
we wish them luck in their venture.
is dropping Gansevoort, their partner in redeveloping
Bill's Gamblin' Hall on the Strip. So, who will be the new
partner? How much money have they sunk in this deal? How does
this affect what they're going to build? How does this affect
the schedule? How long will it take to find a new partner?
More bad news for Caesars who doesn't need any.
There is more bad news on the Caesars front. Investment web site
the Motley Fool has written
analysis of the Caesars situation. Summary: They don't think
it looks good for Caesars going forward. Here are their facts:
Caesars is assuming an additional $2.15 billion in debt on top
of a total of $28 billion on gross revenues of $8.6 billion
which is down 15% from last year. They've posted negative free
cash flow for each of the past five years. Even if one removes
capital expenditures from this, then their free cash flow is
positive, but the highest number they've produced in the last five
years is $535 million. Interest costs for Caesars runs about
$2.1 billion per year. We're not in the business of giving
investment advice, but given this information, it's hard for
us to see a way out.
Howard Stutz of the RJ
us more information about Caesars' financial situation. Basically,
they've got $23.5 billion in debt. They're refinancing about $5 billion
that comes due next year, as mentioned in our previous posting. Now
they're spinning off a new company to hold Planet Hollywood and the
new Horseshoe Casino Baltimore as a separate entity. They'll raise
some money from this but not a lot as a percentage of their debt.
At the same time, they don't specifically say that they'll use this
money to pay down their debt.
What's also not clear to us is why should specifically these
properties be split off? We might guess, and this is all just wild
speculation, that Planet Hollywood would be a low performance property with
a significant amount of debt attached to it, so spinning that off
might be a way to send some non-core holdings into Chapter 11 separate
from the rest of the company, but if this is the strategy and, again,
we have no strong reason to think it is, why link that with a brand new
property, unless they now expect it to underperform? The S-1 Caesars
filed with the SEC doesn't tell us much about their strategy. So,
we don't know what their plan is, but we find a statement Stutz quotes
in his article from a representative of the company to be telling:
"Caesars has a lot of debt. We think it's manageable, but others
disagree." Not exactly confidence inspiring.
More on the issue of Caesars and financing. The RJ reports that
has restructured more than $4 billion in debt that was scheduled to
come due this year. On the one hand, this will help Caesars
navigate through the current lean years. However, at some point we
have to start to wonder whether continually pushing off this debt
isn't the corporate equivalent of paying off one credit card with
the other. What happens if the future economic world in which it
becomes easy to pay off this mounting debt doesn't happen?
Rich Velotta of Vegas, Inc. notifies us that
publisher of the "Openings and Closing in Las Vegas" newsletter has
warned its subscribers that Caesars may be on the verge of bankruptcy.
This seems possible, based on what little we know, as it appears to us
that during the economic downturn Caesars deferred a lot of its debt,
but it still has to come due some day, it's not like the economy has
gotten a whole lot better in the last few years, and Caesars, unlike
Las Vegas Sands or MGM can't pay off their Las Vegas debts with
income generated by properties in Macao or Singapore. On the other
hand, no offense to the maintainer of the newsletter, but it's not
like we read this in Business Week, so we're more than
a little skeptical. But, if it's reputable enough for Velotta to
report, that makes it reputable for us to pass on... . On the off
chance Caesars' resorts does declare bankruptcy, we don't
believe that significantly affects already open casinos or players'
deposits with those casinos.
Downtown Grand seems like it's still headed toward opening this fall,
although we haven't heard a specific date. Of course, this place is
the reincarnated Lady Luck, which closed back in 2006. The owners claim
to be investing more than $100 million on the project. That's a lot of
money for a downtown casino that's not the Golden Nugget. It's always
nice to see a new place open up, and we wish the new owners luck.
Okay, this won't be the last word on this topic, but
judge has cleared the way for the demolition of CityCenter's Harmon
tower. What's different this time, is that both sides in the
dispute (MGM Resorts and Perini Construction) agree that the building
is unsafe. This doesn't mean that there can't be challenges to the
idea of demolition, and it doesn't mean dismantling the building will
start tomorrow. Howard Schwartz tweets that MGM says it might take
up to a year to clear the site, and it hasn't started yet. We at
the Death Watch don't expect a spectacular implosion, its proximity
the the street, crosswalks, and other buildings precludes that.
Las Vegas Review Journal reports that the CEO of the Riviera, Andy Choy,
was fired. This is another issue is that over the last several
months they've closed several restaurants while changing around a few
others without doing an extensive remodel as far as we can see. Third,
their annual report (the 10-K, as they say in the financial world) isn't
exactly brimming with confidence. While we expect a certain number of
"going concern" warnings in any such document, especially one for an
organization that came out of bankruptcy just over two years ago and
business hasn't exactly been booming, this one feels especially ominous.
This has to be the most "at risk" property on the Strip at the present time.
Sieroty has a piece in the RJ about Hooters. We learn some things.
First, because the debt holder bought the casino out of bankruptcy,
the property currently has no debt. Second, the current owners of
the property are actively seeking a new owner for it. Third, while
they don't have a new name for the place, they're actively shopping
for a new hotel operator, and this could happen "shortly". So,
there's little chance for the place to close, but a new owner and
new theme are very possible on a time horizon of months.
casino is changing its name to "The Silver Sevens". A name
change makes sense, as it's no longer associated with the Herbst
family, but the new name doesn't really ... grab us. Ah, well.
Gold Spike will reopen in about two weeks! Only it will reopen
without its casino. We're not sure this is a big loss to the Las
Vegas community, as the casino consisted of a maximum of four table
games, a few dozen slots and video poker machines, and a William Hill
sports betting counter, but it means it no longer falls under the
auspices of the Death Watch. This is good news to the couple of
dozen employees who will be able to get back to work.
The Gold Spike may be closed, but the lawsuits have just begun.
employee has filed suit claiming that the Gold Spike's owner didn't
give the required 60 day notice for closing the property. We can't
find a news source who has actually looked into what's going on.
If they won't pick up the ball, the Death Watch will. Note, we're not
labor lawyers and nothing we say here should be taken as a pronouncement
by someone with, you know, expertise. However, it looks to us that the
relevant regulation here is a federal law known as the WARN act. It
says that a company with more than 100 people must provide 60 days
notice before closing a facility if the shutdown will result in the
loss of 50 or more full-time positions. The Las Vegas Sun suggests
than 50 people lost their jobs, which would mean that the Gold Spike
wouldn't have to provide notice.
Of course, there may be a state law, gaming regulation, or labor agreement
that is in force that has different requirements. We hope someone with
real knowledge will chime in, or failing that, a news source with actual
resources *cough* will ask someone who knows what's going on here.
Las Vegas Club is closing its hotel towers. Previously, they
had only been open for weekend reservations, now they won't be
open at all. We suppose this could be a prelude to a big
upgrade as Tamares did with the Plaza, but they were trumpeting
that upgrade to high heaven, this one, not so much. Our best guess
would be that they're going Binion's, keeping the casino open but
closing the rooms. What their long term plan is, we don't know.
Gold Spike is closing this Sunday! Given that the buyer has
historically not been involved in gaming, this very well may be the
end of that property as a casino. If you want to get a last
look at the place, start heading that way now.