Tuesday, March 1, 2011 | 2:46 p.m.
Moody's Investors Service today upgraded key Caesars Entertainment Corp. debt ratings, saying the profitability measure of EBITDA should rise moderately in 2011 for the Las Vegas-based casino operator.
That prediction is based on "signs of modest improvement in demand trends across the majority of markets in which Caesars operates," Moody's said.
Some $12 billion of rated debt is affected by today's changes in which Caesars' corporate family and probability of default ratings were lifted to Caa2 from Caa3. Moody's outlook for the debt is stable. In all, Caesars has a hefty debt load of nearly $18.8 billion.
Moody's assigned a speculative-grade B3 rating to Caesars' proposed $400 million senior secured loan to finance completion of the Octavius Tower at Caesars Palace and for development of the Project Linq retail, dining and entertainment corridor between the Imperial Palace and the Flamingo on the Las Vegas Strip.
Moody's expects Caesars' EBITDA -- earnings before interest, taxes, depreciation and amortization -- "will begin to stabilize and that Caesars has sufficient cash on hand and revolver (loan) ability to manage its cash needs over the next several years."
On the downside, the speculative-level Caa2 corporate family ratings reflect "very high leverage, weak interest coverage, the company's debt-financed growth strategy and our view that the company's current capital structure in unsustainable in the long-term," Moody's said.
"The ratings reflect our expectation that gaming demand will rebound very slowly over the next several years," Moody's said.
According to Moody's definitions, "Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk."
At Standard & Poor's, analysts there raised Caesars' corporate credit rating to B- from CCC+ in April 2010.
On Monday, Fitch Ratings said Caesars' plan to borrow the $400 million has no ratings impact on Caesars' CCC issuer default ratings.
"This transaction is consistent with management's strategy of attempting to grow into the highly leveraged capital structure, rather than seeking to create a more sustainable capital structure by reducing debt. The company is betting that the positive operating leverage expected to materialize on the Strip over the next couple of years will drive significantly improved Las Vegas performance, with Linq and the Octavius Tower helping to fuel that improvement," Fitch said in its report.
Last week, Caesars reported improved revenue numbers in the fourth quarter for Las Vegas thanks to its purchase of Planet Hollywood and a slight increase in same-store sales.
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