Caesars announces recapitalization plan, debt ends softer; Toys 'R' Us firms on investor call

By Stephanie N. Rotondo

Phoenix, May 7 - The distressed debt market was focusing on Caesars Entertainment Corp. on Wednesday as the casino operator not only released earnings, but also announced a recapitalization plan that will strip guarantees from some of its debt.

Not surprisingly, the recap plan put pressure on most of the company's debt, though there were a couple issues that managed to gain ground.

Meanwhile, Toys 'R' Us Inc. bonds pushed up after the retailer held a lender/creditor conference call on Wednesday. The call was to discuss the company's fourth-quarter results, which were previously released at the end of March.

With its earnings coming up, NII Holdings Inc. bonds were seen trading mixed.

A trader said the 7 5/8% notes due 2021 rose half a point to 291/2. But both the 10% notes due 2016 and the 8 7/8% notes due 2019 were weaker, at 36 and 433/4, respectively.

The trader deemed the latter two issues down almost a point.

Caesars ends mostly soft

Most of Caesars Entertainment's debt was softer at the end of the day after the Las Vegas-based casino and hotel operator announced a recapitalization plan that will strip guarantees from debt linked to the operating company.

The 11¼% notes due 2017 were the most active of the structure, according to one trader who said that at least $90 million bonds changed hands. He called the issue off 1½ points at 901/2.

The 8½% notes due 2020 were also weaker, slipping 1¾ points to 793/4.

The 9% notes due 2020 closed down 1½ points around 81.

However, the 10% notes due 2018 managed to put on about 3½ points, the trader said, pegging the bonds at 47. The 10¾% notes due 2016 were also better, rising 3 points to 93.

Another market source placed the 10% notes at 47 bid, up 2½ points.

Caesars announced the recapitalization plan late Tuesday. Under the plan, Caesars Entertainment Operating Co. sold a 5% equity stake to institutional investors. The "opco" will also secure a new $1.75 billion first-lien term loan, which will be used to redeem 2015 maturities and to repay existing bank debt.

As such, the company also announced a tender offer for the 5 5/8% and 10% notes due 2015.

As for the equity sale, in doing so the parent company released its guarantee of the opco bonds. That means that bondholders can no longer place a claim against the parent company's assets in the event of a restructuring. It could also give them less bargaining power in a restructuring.

Bondholders are already decrying the company's sale of four properties to its Caesars Growth Partners affiliate - another important feature of the recapitalization plan - alleging that it is a fraudulent transfer that strips assets from the opco.

The bondholders also claim that the opco is insolvent.

Caesars also released earnings for the first quarter of 2013.

At the parent company level, casino revenues fell 8.6% to $1.36 billion. Net revenues were down 1.9% to $2.1 billion.

Net loss was $386.4 million, or $2.82 per share. That compared to a net loss of $217.6 million, or $1.74 per share, the year before.

As for the opco, net revenues dropped 10.9% to $1.44 billion. Net loss was $492.9 million, versus $254.2 million the year before.

Those figures did not take into account the opco's continued involvement with the LINQ and Octavius Towers at Caesars Palace.

Toys bonds rise post-call

Toys 'R' Us held an investor call on Wednesday to discuss its previously released fourth-quarter results.

Though the earnings were disappointing, investors must have heard something they liked during the call, as the bonds ended firm.

One trader called the 7 3/8% notes due 2018 up nearly 4 points to 69 3/8.

Another market source placed the issue at 68 bid, up a point on the day.

For the fourth quarter of 2013, the Wayne, N.J.-based toy retailer reported a net loss of $210 million, which compared to net earnings of $239 million the year before. Same-store sales fell 4.1% and net sales dropped 8.7%.

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