Caesars Entertainment has reached a level of debt that is twenty-four times bigger than what the company is worth. The last hopes for Caesars to stop the escalation of its debts was back in March, experts say.
They further explain that unlike many banks which get in debt and have the WTO or a national reserve to help them recover, in order to save the businesses and individuals who have deposits in them, Caesars is a private company and is very unlikely to receive help from the government when its bond yields are reaching close to 65%. From the current looks of Caesars’ financial state, if it files for bankruptcy, its stick price will plummet too fast and it will not be able to recover.
Experts advise that the company should not reconstruct its stock but rather aim at a price of $2.50 per share for 2016. The best chance it has is to near its finances.
Even though the goal of a CZR of $2.50 by 2016 and 2017 seems rather improbable, the government issued a plan for bailouts for that price, which leads us to believe it is the best chance the company has.
An 8K report filed on September 26 shows that Caesars Entertainment Operating Company, Inc. has a different plan. In short, this document states that if there is any lawsuit filed against the company, the first creditor that is to receive money back is the one with the highest amount of bonds.
That move by Caesars made lesser creditors react fast by filing lawsuits stating that the company is trying to protect itself by defending its more secure creditors and leaving the smaller ones vulnerable to any financial breakdown of the company. Caesars is surely doing this to ensure that bankruptcy does not come soon.
The 8K report is a tricky move that many claim to be immoral for both defending Caesars against bankruptcy and the inevitable lawsuits that followed after creditors found out about it. Another way that the meaning and effect of the report can be explained is that no matter who wins a lawsuit against the company, the biggest creditors will receive compensation first.
The biggest creditors receive the lowest interest rate, as they are secured first if a bankruptcy takes place. On the other hand, lower tier investors are given higher interest rates, as they are on the bottom of the list for compensation. Caesars is able to pay its creditors up to a 65% solvency.
At the end of the day, the junior creditors at Caesars Entertainment, or in any other company, are the ones that take the highest risk, it is a reality that any economist is aware of. Those creditors cannot blame the company or anyone else, in case the worst case scenario unfolds, as they knew how compensation will be distributed.
