- Caesars has reached a deal to reduce its debt by $548 million.
- Caesars' shares have fallen sharply since I outlined my bearish view.
- I remain bearish on Caesars and believe the company is likely to issue additional equity in the future.
On Monday, Caesars Entertainment Corp (NASDAQ:CZR) announced a deal with bondholders to reduce its debt by $548 million. CZR shares traded sharply lower following the news. As part of the deal, CZR will cancel $393 million of the debt that it owns in its operating company, Caesars Entertainment Operating Co. (CEOC). Additionally, CZR and CEOC will each pay out $77.7 million in cash to bondholders.
Caesars' Shares Down 30% From My Previous Piece
As shown by the chart below, since June 9, 2014, the date of publication for my piece entitled Caesars Entertainment: A Strong Sell, shares are down 30%. The reason why I had been, and continue to be, bearish on CZR is the company's massive debt load.
Why I Remain Bearish
While the deal that CZR announced is a step in the right direction, it is a relatively insignificant step as the company still has more than $20 billion of debt outstanding. CZR CEO Gary Loveman said, "the transaction we are announcing today is the latest in a series of steps intended to deleverage the operating unit and position it for a potential stock listing." I believe the next, inevitable step in the CZR story is a significant debt for equity swap which will be highly dilutive to current CZR shareholders. However, given the significant drop in CZR's share price, I am not as bearish as I had previously been. Furthermore, the announced deal suggests that CZR might be able to reach a larger deal in the weeks and months ahead. Currently, CZR remains locked in a court room battle with additional bondholders. The time to go short CZR has likely passed due to changing risk/reward dynamics. However, I continue to believe that the ongoing restructuring will result in a lower price for CZR shares.