Posted on: September 22, 2024, 04:10h.
Last updated on: September 21, 2024, 09:10h.
The recent interest rate cut by the Federal Reserve along with Caesars Entertainment’s ongoing efforts to reduce debt make the casino operator’s longer-dated bonds attractive to income investors.
In a recent report to clients, GimmeCredit analyst Kim Noland mentioned that Caesars could potentially benefit from lower interest rates compared to its competitors due to a higher portion of its debt being in variable rate bonds. The analyst estimates that the company could save $91.1 million in annual interest expenses if rates fall by 150 basis points, a scenario that some market observers believe could occur by the second quarter of 2025.
Caesars’ debt reduction goals indicate that the company may address a significant portion of secured debt in its capital structure. Therefore, we recommend the secured first lien debt as a better option in a weakening economy,” Noland observed.
Noland initiated coverage of Caesars 2032 bonds, which offer a yield-to-worst of 5.6%, with an “outperform” rating. Bonds with longer durations tend to be more sensitive to changes in interest rates.
Caesars Commended for Asset Sales
After the 2020 merger with Eldorado Resorts that created the “new Caesars,” the gaming company faced a substantial amount of debt. The management team, led by CEO Tom Reeg, has made progress in reducing this burden, a move lauded by Noland.
“Asset sales such as the recent sale of the World Series of Poker brand should also aid in debt and leverage reduction,” she wrote.
In September, Caesars announced the sale of the intellectual property rights associated with the World Series of Poker (WSOP) to investment firm NSUS Group Inc. for $500 million. Caesars will receive an initial payment of $250 million with the rest due in five years, while retaining the rights to use the WSOP brand for land-based poker tournaments.
Regarding potential asset sales, another analyst recently suggested that Caesars could sell the Linq Promenade on the Las Vegas Strip, which could lead to a $700 million transaction. The company has not commented on this speculation.
Monitor Icahn, Advises Gimme Credit
Noland mentioned in her report that Carl Icahn’s Icahn Enterprises is once again involved with Caesars shares. His company disclosed in August that it had reacquired a stake in Caesars totaling 2.44 million shares.
“Bondholders should stay alert for potential activist activity,” advised the Gimme Credit analyst.
Prior to this, Icahn played a crucial role in the Eldorado/”old Caesars” merger. He recently stated that he does not have plans for activist involvement with the gaming company. It is also unlikely that management is seeking large-scale acquisitions or needs Icahn’s prompting to sell assets for debt reduction.