Published on: December 26, 2025, 01:11h.
Updated on: December 26, 2025, 01:11h.
- Casino operators are facing elevated debt-to-EBITDA ratios compared to competitors.
- Analysts indicate that coverage ratios remain fairly low.
- Excessive debt may obstruct their capability for asset-level investment.
Caesars Entertainment (NASDAQ: CZR) and Penn Entertainment (NASDAQ: PENN) have faced challenges this year due to hefty debt loads that remain a significant concern.
Despite three interest rate reductions by the Federal Reserve and efforts from both companies to reduce their liabilities, their financial situations remain strained. According to a note from Morningstar analyst Dan Wasiolek dated December 23, Caesars and Penn have debt-to-adjusted EBITDA ratios of 6.7x and 8.7x, respectively, which could limit opportunities to access debt markets in the future.
“Strong balance sheets are crucial in the capital-intensive and competitive gaming industry, influencing firms’ abilities to secure debt. This capital is essential for acquiring or upgrading physical and online assets to attract customers and strengthen market presence,” notes Wasiolek.
Notably, Penn has successfully secured $850 million for enhancements at regional casinos in Illinois and Ohio, as well as the M Resort Spa Casino in Henderson, Nevada, which analysts have praised.
Caesars and Penn Await Benefits of Lower Interest Rates
Discussions around potential advantages from reduced interest rates for Caesars are ongoing. Some analysts estimate that for every 100 basis points reduction in the Fed’s lending rate, Caesars could save approximately $60 million annually in interest costs.
However, both Caesars and Penn possess substantial amounts of fixed-rate debt, meaning the interest rates on that debt do not decline with Federal rate cuts.
“Interest rates on much of Caesars’ and Penn’s fixed-rate debt hover around a high single-digit percentage, contrasting with the low single-digit rates applicable to less leveraged industry peers,” states Wasiolek.
With three Fed rate cuts this year and further reductions projected for 2026, consumer sentiment among middle-income groups—which are critical for both companies—might improve. Additionally, lower borrowing costs could stimulate merger and acquisition activity, potentially benefiting Caesars if it opts to divest certain assets.
Debt Challenges May Limit Investment Opportunities for Caesars and Penn
Wasiolek emphasizes that both operators’ debt levels could limit their capacity for investments. However, Penn is actively refurbishing various brick-and-mortar locations while also funneling resources into its expanding iGaming sector.
For Caesars, enhancing its land-based casino properties—both on and off the Las Vegas Strip—is essential, as several of its venues are reportedly in need of upgrades, posing a significant challenge for the Flamingo operator in the short term.
“We have adjusted our fair value estimates for both Caesars and Penn to $35 and $16 per share, respectively, down from $52 and $20. Furthermore, we have raised our Uncertainty Rating for Caesars to Very High from High due to concerns about leverage, maintaining Penn’s rating at Very High as well,” concludes Wasiolek.