NEW YORK ( TheStreet) - Caesars Entertainment ( CZR) says it's working to improve its capital structure but despite moves to cut costs, buy back debt and pursue a spin-off, Caesars' $23.7 billion debt load is still the elephant in the room and could push the casino operator into Chapter 11. For the moment, concerns about the company's cash flow sent shares dropping 8% to $15.50. Of course, Caesar shareholders have enjoyed a nice run: the shares are still up 124% this year. It's not just the size of the Las Vegas-based, private equity-backed casino operator's debt burden that is worrisome; substantial maturities in 2015 and 2016 are also a cause for concern. However, Caesars CEO Gary Loveman promised in a July 29 second-quarter earnings call that he is "acting aggressively to improve the company's capital structure." But debt investors aren't too optimistic. One hedge fund invested in Caesars' debt, which asked not to be named, said, "They would need a meteor to destroy the earth, or they'd need
PE owner Apollo Global Management LLC to come in and buy billions of debt" to avoid filing for bankruptcy protection. In fact, the hedge fund investor thinks Caesars may already have bankruptcy on the mind. "They're not acting like a company that's hoarding cash, and maybe they're figuring that the end is near." Although the hedge fund investor is pessimistic about recoveries for creditors of the operating company Caesars Entertainment Operating Co. Inc., he thinks the situation at the property-owning unit, Caesars Property Co., is "fixable." "We think that's covered," he said, explaining that Caesars could refinance that debt ahead of a bankruptcy filing. PropCo first-lien debt is trading at 93 or 94, up from 70, he said, counting that as a statement of faith in a PropCo refinancing. The mezzanine debt in the PropCo unit is trading at about 70 cents on the dollar, but the investor thinks there's hope for that class too. "If I was them, I'd just tank the business, buy back debt in the 20s 20 cents on the dollar range , and equitize those notes," the investor said, adding, "I've seen people try to run down their stocks, and that's not what they were doing on the earnings call . They were all smiles, and 'everything's fine.'"