Months of behind-the-scenes talks with creditors have led debt-ridden Caesars Entertainment Corp. to the brink of bankruptcy.

Today the company announced that it will not pay $225 million in bond interest, triggering a default that could lead to a bankruptcy filing as early as January 15.

The question for stakeholders – including Baltimore City and employees at the Horseshoe Casino – is whether a Caesars receivership will go swiftly and quietly, as company executives hope, or erupt into a messy financial battle.

The latter could cause serious reputational damage to the fledging casino and lead to job cutbacks and lower paychecks among the 2,400-member workforce, as has happened at Atlantic City casinos.

Unlike the Grand Prix, City Hall’s previous attempt to bring splashy entertainment to downtown, Horseshoe Casino will be part of Baltimore’s economic landscape for years to come. Caesars holds a 50-year lease with the city to rent the land occupied by the new facility on Russell Street.

Mayor Stephanie Rawlings-Blake has described the casino, which opened August 26, as a future anchor institution, a designation which put it in the rarefied company of Johns Hopkins Hospital, Loyola University and other so-called “eds and meds” touting their value to taxpayers as good civic citizens and job creators.

Her administration has also entered into a series of financial and operational arrangements with Caesars. Key among them are future commitments to pay for millions of dollars worth of roadway and steam-line improvements and the establishment of heavy police protection through a newly-established “casino mini-district.”

Short- and Long-Range Impacts

How might a bankruptcy filing impact these agreements and the casino’s future revenue stream, which currently is running about one-third below projections?

In the short run, a Caesars bankruptcy would have little discernible impact at the casino, at least structurally, due to some clever financial engineering by the parent company.

Last year, Caesars Entertainment Corp. (CZR) placed ownership of Horseshoe into a new company, Caesars Growth Partners, to separate it from CZR and its $23 billion in debt. (Also nestled in the new company are Bally’s Las Vegas, Harrah’s New Orleans and Caesars’ interactive gaming business.)

The new company has come under attack in several bondholder lawsuits as a ploy to place less-indebted units outside the reach of creditors.

Indeed, Growth Partners was set up as a “temporary financing vehicle” that could be liquidated by Caesars within three years and the properties reverted back to the parent company, which by this time would likely be “cleansed” of debts through the bankruptcy reorganization.

The Maryland Lottery and Gaming Control Commission approved the ownership change for Horseshoe after concluding that the change would have minimum impact on casino operations.

But its decision was based wholly on Caesars’ representations to the commission that the financial restructuring would proceed without major challenges from creditors. The last six months have proven this wrong – many powerful Wall Street players  have objected to the gaming company’s moves.

Talks that began in September between Caesars CEO Gary Loveman and bondholders have broken down. Court filings alleging that Loveman and his allies have “looted” CZR have been filed in Delaware and New York courts. Caesars has denied the accusations.
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Last September, The Brew published a three-part series on Caesars’ financial woes:

PART 1: Wall Street sharks circling the financially bleeding operator of Horseshoe Baltimore

PART 2: Early signs of Caesars’ financial weakness were ignored

Part 3: How a math wizard from Harvard led Caesars down a path of expansion and debt
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In the event of a bankruptcy, CZR’s majority interest in the Horseshoe license will be retained through Growth Partners. And even if creditors gain control of CZR in the courts, Growth Partners will continue to have voting control of the casino.

Reputational Damage, Threat to Employment

Less obvious is how a drawn-out bankruptcy battle will affect the reputation and revenue generation of the Baltimore casino.

Bad publicity drives away customers. A Caesars bankruptcy would almost inevitably allow competitors (namely, Maryland Live at nearby Arundel Mills) to gain gamblers at Horseshoe’s expense.

This in turn would place enormous pressure on local management to cut costs. In Atlantic City, Caesars trimmed back employment among its casinos and shut down the Showboat in September, throwing thousands out of work.

Looming in the future is the opening of the $1 billion MGM National Harbor resort casino in Prince George’s County.

The casino is expected to draw a huge pool of gamblers from Virginia, Washington, D.C., and the southern Maryland suburbs who are now obliged to drive to Baltimore to play slots and table games at either Maryland Live or Horseshoe.

Ground Lease Payments

Will the city be forced, over time, to renegotiate the ground lease payments it expects from the casino, which are scheduled to rise from a $8 million minimum this year to $14 million minimum in fiscal 2019 and thereafter?

Last week, the city’s budget director acknowledged that Horseshoe is expected to barely be able to meet its $8 million minimum payment this year.

Under current projections, the casino will make a relatively small dent in financing property tax relief that the mayor has promised homeowners over ten years.