With another reshuffling of assets among its subsidiaries, few are coming to praise Caesars Entertainment Corp., though none are ready to bury it either. The casino operator’s latest move has intensified speculation about a distressed exchange.

The company recently disclosed that one of its operating subsidiaries, Caesar’s Entertainment Operating Corp. (COEC) is selling $2.2 billion in assets to Caesar’s Growth Company, a joint venture between the parent company and an entity controlled by its private equity shareholders.

The assets are Bally’s Las Vegas, The Cromwell, The Quad and Harrah’s New Orleans to Caesars Growth Partners and the $2.2 billion valuation includes $185 billion in assumed debt and $185 million in committed capital project funding. CEOC will reap $1.8 billion in cash from the transaction, which is expected to close in the second quarter.

The move prompted the two major ratings agencies to put the company’s ratings under review for a possible downgrade.  Moody’s Investors Service was the first to announce that it placed CEOC (the seller) under review for a possible downgrade. Moody’s currently has a Caa2 corporate family and probability of default ratings on CEOC; its senior secured debt is rated B3 and its unsecured debt is rated Ca.

“The sale will provide CEOC with needed liquidity to fund operating losses, however, the loss of Ebitda, from four properties, including three located in the better performing Las Vegas market, is negative for CEOC’s overall credit profile,” Moody’s stated in the report.

It said the sale is “likely the first in a series of steps to address CEOC’s unsustainable capital structure that will include repayment of an as yet to be determined amount of bank debt and could include repurchase of existing debt at a discount that Moody’s would likely deem to be a distressed exchange.”

In addition to CEOC, Standard & Poor’s also placed all of its ratings on Caesars Entertainment Corp. (CEC) and Caesars Entertainment Operating Co. on CreditWatch with negative implications; it also placed all of its ratings on Caesars’ wholly-owned and majority-owned subsidiaries such as Caesars Entertainment Resort Properties, Corner Investment and Chester Downs and Marina, on CreditWatch with negative implications.

Fitch Ratings noted in a report that the movement of assets was positive for Caesar’s equity holders and Caesars Entertainment Resort Property (CERP)’s creditors, but negative for CEOC creditors because it deteriorates some debt holders’ recovery prospects. Because while it may improve liquidity on CEOC, its stripping away of valuable assets means it will not be able to generate the same level of cash flow that it will need to help pay bondholders.  Fitch did not place the company’s ratings under review but CEOC has a negative outlook with the agency.

Given CEOC’s total debt load of nearly $21 billion, there would need to be a material amount of debt reduction to offset the loss of Ebitda and simultaneously reduce CEOC’s high leverage and operating losses, the report stated.

Caesars Entertainment had approximately $24 billion in debt as of Sept. 30, 2013, according to a regulatory filing.

“Caesars is shuffling assets but has yet to make any meaningful attempt to reduce debt or improve overall liquidity,” said KDP Investment Advisor analyst Barbara Cappaert in a March 3 report.

“We think it will be difficult for management to force a restructuring now given the lack of immediate capital structure concerns (i.e. maturities) and given the liquidity afforded as a result of the asset sales,” Cappaert said. “This is not to say they won’t try, we just are not placing much credit on completion at this time.”

The transaction improves liquidity for CEOC, but CreditSights points outs that it gives no clue to second-lien debt holders as to what kind of efforts, if any, the company is making to see that they are paid.

CreditSights agrees with KDP’s assessment that the real effort to address Caesar’s debt issues has yet to be initiated.

“If anything, the transaction puts the company further down the path to a distressed debt exchange (even if the added liquidity makes the ‘path’ quite long),” CreditSights analysts Chris Snow and James Dunn said in a March 3 report.

It’s not the first time that the casino operator has been shuffled assets around its labyrinth of subsidiaries, prompting speculation that it was headed to a probable distressed exchange.

Last September, one of the casino operator’s subsidiaries, Caesars Entertainment Resort Properties (also known as CERP or as PropCo), issued more than $5 billion of loans and bonds and used to repay debt issued by CEOC. The debt is guaranteed and secured by the Rio, Flamingo, Paris and Harrah’s casino resorts in Las Vegas, Harrah’s in Laughlin, Nev., and Harrah’s in Atlantic City, N.J., all of which are owned by the PropCo. The debt is also guaranteed by the Octavius Tower and Project Linq assets, which are currently owned by CEOC (also known as OpCo.).

Casino and gaming companies have faced tough times. Depressed consumer spending followed years of levered expansion on the part of many companies. Additionally, new competitors have sprung up in almost every region. (For more coverage, see "Vegas Hard Rock Casino Aims to Avoid Foreclosure" and "The Buyside: Pinnacle Deal Signifies Gaming Comeback.")

Along with the announcement on the asset sale, Caesars released preliminary fourth quarter 2013 results that proved disappointing. Caesars Entertainment expects a Q4 2013 net loss between $1.7 billion and $1.82 billion. It cited weaker than expected performance in its regional areas, particularly in Atlantic City, N.J.

Despite its highly leveraged profile, the company has been consistently successful at selling junk bonds on the primary market since its buyout. It tapped the bond markets early in 2013 and priced a drive-by offering of $1.5 billion in add-on 9% senior secured notes due 2020 in early February.

In 2006 a group of LBO firms led by Apollo Global Management and Texas Pacific Group led a buyout of the company for $15 billion. That was one of the largest buyout deals in history at the time. The private equity groups still hold significant equity in the company. Last year Apollo and TPG made a capital infusion into Caesars. Together with some new investors, they brought a minority stake in Caesars Growth Partners, which then acquired some of the group’s more valuable assets.

“Management made it clear that the good assets are almost all gone,” CreditSights analysts said in their report.

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