Is Investing In Caesars Entertainment As Good As Gambling?
Caesars Entertainment (NASDAQ: CZR) continues to make headlines after hitting another hurdle in its never-ending bankruptcy quandary. The company’s stock price has been very choppy over the last few years, and this pattern was repeated again on the course of last month and early this month. Still, there is little to suggest that stability will resume anytime soon.
The company has been facing several obstacles including tight gaming restrictions in the home country U.S., as well as, operational challenges tied to high levels of debt and unpredictable revenues. The US is very specific when it comes to controlling the flow of money in the economy and gambling is one of the gray areas.
Several individuals still engage in gambling illegally which means some of the revenues that could have gone to companies like Caesars Entertainment end up on the black market. While there are several gambling advisory platforms like this organization, which try to advise gamers on disciplined gaming, a majority are still locked in the dark pools of illegal gambling.
A quick rundown of Caesars Entertainment volatility and the bankruptcy quandary
On September 22nd, CZR shares went up by 33.8% following a restructuring plan on Caesars Entertainment Operating Company (CEOC), which is the company’s bankruptcy subsidiary.
The measure to restructure CEOC prompts $1.6 billion increase to second-lien bondholders who have been holding back on previous negotiations with the gaming company.
Apollo Global Management and TPG are reported as the main contributors to the increase. The two equity firms are to surrender their $954 million worth stakes back to the company after the court ruled in favor of Caesars Entertainment. Apollo Global Management and TPG subjected Caesars Entertainment into huge debt when they acquired it in 2008.
The offer is the company’s latest attempt of trying to put the bankruptcy stain behind in a bid to setting things in motion for resumption to normal operations. However, the holdout by second-lien note holders remains clear as the company exerts urgency in settling their debts.
On September 27th, the shares went down 18% leaving the question on bankruptcy settlement. The company had reported interests to restructure CEOC, hoping this would lend a helping hand to power through a horde of debts that the organization has been struggling with.
Caesars Entertainment’s stock has been extremely volatile over the past few months. The battle between second-lien bondholders and higher-ranking creditors has been going on even with announcements to restructure CEOC, which would in return see both Caesars Entertainment and CEOC rebalance their books.
The company has been the subject of proposed buyouts since 2008. But the struggle has remained stiff even after Apollo and TPG’s equity into the company that same year.
The anticipated effort did not bear fruits as business was drastically affected and the two equity firms also started facing hardships when the financial crisis of 2008 kicked in.
The offer, 6 pence into a dollar, to second-lien holders by the company was seen as a revival strategy that not only offered Caesars an opportunity to jump back but was also consequential as it marked the organization’s endless struggle with this group of investors.
Even with confirmed support from senior creditors, this was not enough for Apollo and TPG, the now major stakeholders in the company, to sail through bankruptcy schemes if the junior bondholders were not on board. Their efforts to have the court rule in their favor against Caesars were also cut short when the judge presiding over the case ruled otherwise.
The terms of the agreement stipulated that Apollo and TPG would surrender their held stake of $954 million back to the parent company.
Conclusion
In summary, Caesars Entertainment ongoing bankruptcy case has put the company’s stock price in a precarious position and this is evidenced by the volatility levels witnessed in the past few months.
At the moment it is pretty hard to predict the next move for the stock price as the contingent nature of the scenario could tilt the scales either way depending on the stories that come out from the courtrooms.
Disclosure: The material appearing on this article is based on data and information from sources I believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor ...
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