Analysis: Caesars bankruptcy ends amid Asia market shift, Vegas shooting

By Tracy Rucinski

CHICAGO (Reuters) - Caesars Entertainment Corp has an eye on expanding its Caesars, Harrah's and Horseshoe brands in the United States and abroad after its casino operating unit emerges from nearly three years of bankruptcy as soon as Friday with $10 billion less in debt.

Industry analysts said it may be too late to catch up with rivals like MGM Resorts International , Wynn Resorts Ltd and Las Vegas Sands Corp that have spent years investing in high-growth Asian markets like Macau as U.S. gambling has cooled.

"Twenty-five years ago Caesars was the premiere name internationally but they dropped the ball," said Greg Bousquette of investment banking firm G.C. Andersen Partners, which advised unsecured creditors during the Caesars bankruptcy.

 

Caesars has spent years struggling to manage more than $25 billion in debt, much of it taken on in 2008 when Apollo Global Management and TPG Capital led a leveraged buyout of the company. The operating unit filed for bankruptcy in early 2015.

Caesars emerges from Chapter 11 with a simplified structure by merging with Caesars Acquisition Corp and other affiliates, and former creditors will hold a majority of the stock.

The U.S.-focused company may be more vulnerable than its peers if any downturn follows this week's mass shooting on the Las Vegas Strip, where Caesars owns some of its most valuable resorts and casinos and derives most of its revenue.

Las Vegas resort operators like Caesars may have to cut hotel rates and spend more on security and marketing to draw customers back, analysts said, though they expect business to bounce back over the longer term.

Caesars declined to comment on any potential decline in its business stemming from the shooting, which resulted in 59 deaths.

The company's stock fell in early trading on Monday, but soon recovered and market sentiment towards Caesars had been largely positive. Its shares, which had lagged rivals through much of the bankruptcy proceedings, have risen 74 percent from a year ago, and investors last week snapped up its first bond offering since 2014.

"We're primed for growth," Caesars Chief Executive Mark Frissora told investors in September, pointing to a leaner post-bankruptcy structure, $2 billion of cash and plans for branding and licensing agreements, and M&A. [L2N1MG19E]

The company in July hired two executives to oversee new projects and expansion in the United States and abroad.

Target markets include Brazil and Japan, which are considering opening up gaming and resorts licenses. Caesars has already received preliminary approval for a foreigners-only destination in South Korea.

But while Caesars spent years struggling under the debt from the leveraged buyout, its rivals were planting their flags in Macau and Singapore. Macau, a Chinese territory about an hour from Hong Kong, long ago surpassed Las Vegas in terms of gaming revenue.

Companies that already have experience operating in Asia are frontrunners to receive licenses to run Japanese casino resorts, according to analysts.

THE PERKS OF TOTAL REWARDS

Caesars may have an edge in a tight U.S. market thanks to its Total Rewards loyalty program, the biggest in the industry with over 50 million members, analysts said.

At Caesars' Horseshoe Hammond outside Chicago, one retired couple said the rewards program is what draws them to the casino twice a week to try their luck at the slot machines and gaming tables.

"The more we spend, the more points we get for food and other perks," said Mrs. Johnson of Crete, Illinois. She declined to give her first name.

Caesars has shown it can plug a hotel or casino into Total Rewards and immediately boost returns. In a Sept. 14 presentation, Caesars said underlying operating profit at the Planet Hollywood Resort & Casino in Las Vegas rose 232 percent in the year after it was acquired in 2010.

As pure gambling declines in the United States, casino operators are relying increasingly on hotel visits and dining and entertainment, as well as new online and mobile platforms to engage the next generation of gamblers.

Still, experts said Asia offers more attractive growth opportunities.

"Really what these companies should be focusing on in terms of best return on investment is Asian markets, particularly Japan," said Morningstar gaming analyst Dan Wasiolek.

(Reporting by Tracy Rucinski in Chicago; additional reporting by Jane Cheung in Seoul and Thomas Wilson in Tokyo; Editing by Tom Hals and Meredith Mazzilli)