Will Caesars (CZR) Stock be Affected by $6 Billion Lawsuit?

NEW YORK (TheStreet) -- Caesars Entertainment Corp. (CZR) has been struck with a more than $6 billion lawsuit by note-holder representatives who are the lone creditors supporting the casino operator's plan to fix its $18 billion debt, Reuters reported.

The lawsuit was filed on Monday in a Manhattan federal court and is looking to collect damages equal to the outstanding principal and interest on at least $6.3 billion in first-lien notes that were issued by the company's operating unit. The unit filed for bankruptcy back in January.

UMB Bank, the indentured trustee for some issuances of first-lien notes, and not the actual shareholders, brought the lawsuit against Caesars, Reuters said.

The company is already in the process of defending itself against several lawsuits that are accusing Caesars of inappropriately benefitting from the transfer of the best casinos from the operating unit over the past several years, Reuters added.

On Tuesday evening Caesars responded to the UMB Bank lawsuit by issuing a statement on its website.

"Caesars Entertainment Operating Company has acknowledged to the holders of first lien notes who are party to its Restructuring Support Agreement (RSA) that UMB Bank is not a party to the RSA and, therefore, the filing of the lawsuit by UMB Bank does not terminate the RSA, which remains in effect. CEOC has been advised by the RSA parties that UMB Bank is acting independently as a fiduciary and not at the direction of the note-holders that are party to the RSA."

Shares of Caesars Entertainment closed at $6.60 on Tuesday afternoon. 

Separately, TheStreet Ratings team rates CAESARS ENTERTAINMENT CORP as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate CAESARS ENTERTAINMENT CORP (CZR) a HOLD. The primary factors that have impacted our rating are mixed-some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, CAESARS ENTERTAINMENT CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The revenue fell significantly faster than the industry average of 7.4%. Since the same quarter one year prior, revenues fell by 38.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • CZR's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 61.64%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • Net operating cash flow has decreased to -$109.00 million or 15.34% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, CAESARS ENTERTAINMENT CORP has marginally lower results.
  • You can view the full analysis from the report here: CZR Ratings Report

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