OREANDA-NEWS. Fitch Ratings has affirmed the Issuer Default Ratings (IDR) of Caesars Entertainment Corp. (CEC, the parent) at 'CC' and the IDRs of Caesars Entertainment Resort Properties (CERP) and Caesars Growth Properties Holdings (CGPH) at 'B-'. All of the issue-specific ratings for CERP and CGPH have been affirmed. Fitch has upgraded the IDR of Corner Investment PropCo (The Cromwell) to 'B-' from 'CCC' and upgraded The Cromwell's credit facility rating to 'B+/RR2' from 'B-/RR2'. CERP, CGPH, and The Cromwell all have Stable Outlooks. A full list of rating actions follows at the end of this release.

The affirmation of CERP and CGPH reflects the two entities' improving credit profiles, but recognizes existing overhangs from the CEOC bankruptcy proceedings. The affirmation of CEC also reflects the existing overhang from the CEOC bankruptcy.

The upgrade of The Cromwell reflects the continued ramp up of the property that is in line with Fitch's original expectations and leverage metrics more consistent with a 'B' category IDR. Similar overhangs from the CEOC bankruptcy that apply to CERP and CGPH also apply to The Cromwell.

KEY RATING DRIVERS

CERP and CGPH Credit Profiles Improving

Both entities have reduced leverage and increased free cash flow (FCF) over the past year. For the latest-12-months (LTM) period ending Sept. 30, 2015, CERP's leverage was 8.0x, down from 10.4x at the end of 2014. CGPH's leverage was 6.4x, down from 7.7x at year end 2014.

FCF has improved materially at the two entities over the past year, with both now generating positive FCF and Fitch forecasts the FCFs to improve through the projection horizon. The primary driver has been an expansion of the EBITDA margins. CERP's and CGPH's margins improved from 22% and 22% at year-end 2014 to 27% and 25% for the LTM period ending Sept. 30, 2015, respectively. CGPH's EBITDA is inclusive of the management fees to CEOC. Margin expansion has been driven by more rational marketing practices and efficient operations and increase in cash ADR rates at the Las Vegas properties.

Project capex spending will be minimal going forward following the May 2015 completion of a $223 million renovation of The LINQ Hotel and Casino (formerly the Quad, CGPH) and the September 2015 opening of the $125 million Atlantic City Conference Center (CERP). Fitch forecasts annual maintenance capex for both entities to be somewhat elevated through the forecast horizon as renovations continue at select properties. These include Paris Las Vegas and Harrah's Las Vegas for CERP and Planet Hollywood for CGPH.

The CERP and CGPH credit facilities contain 50% excess cash flow sweeps so long as senior secured leverage ratios are above certain thresholds (2.75x for CERP, 3.5x for CGPH). These will help facilitate debt. CGPH could invest in additional capex projects in lieu of debt paydown. Fitch forecasts run-rate FCF for CERP and CGPH to be $110 - 130 million and $90 - $110 million, respectively.

The assumptions for the FCF run-rates are as follows:

CERP
--EBITDA: $600 million - $630 million
--Interest expense: $380 million - $366 million
--Maintenance capex: $110 million

CGPH (inclusive of The Cromwell)
--EBITDA: $370 million - $390 million
--Interest expense: $154 million - $143 million
--Maintenance capex: $50 million

Positive on Las Vegas

Fitch is positive on the Las Vegas Strip and expects low to midsingle-digit market-wide RevPAR growth and low single-digit visitation and gaming (excluding baccarat) growth over the next two to three years. Fitch estimates 78% and 73% of revenues for CGPH and CERP, respectively, are generated by properties on the Las Vegs Strip on an LTM basis for the period ending Sept. 30, 2015. Both entities have experienced margin improvement in their Las Vegas segment, driven by marketing cost initiatives and increasing pricing power from recent hotel renovations (e.g. Bally's, Planet Hollywood, the LINQ). The company continues to make hotel renovations a priority as the renovations deliver a high return on invested cash.

The Las Vegas Strip will continue its long and steady post-recession recovery despite the recent weakness in the baccarat segment. The growth in the convention attendance, air capacity and domestic gaming will make for a favorable operating climate, especially for the Strip operators that are more diversified across segments. There also will be no major new supply added at least until 2018 allowing the demand drivers to continue to push RevPARs higher in the interim.

CEOC Bankruptcy Overhang

An examiner was appointed to investigate CEOC's transactions leading up to its chapter 11 bankruptcy filing. The examiner will opine on CEOC's asset sales and transfers to CERP and CGPH, with a focus on determining whether adequate value was received.

A reversal of the asset sales and transfers would be a source of pressure for CERP and CGPH, although Fitch feels the risk of this ultimately occurring is low. A more likely scenario is that either the court finds the transactions were done at a reasonable value to CEOC or that CGPH and/or CERP will be required to make up the difference. Fitch believes that the latter scenario would be manageable for both CERP's and CGPH's credit profiles.

Fitch believes the asset sales were done at the low end of a reasonable valuation range, more so in the case of the LINQ/Octavius Tower transfer to CERP. A reversal of transactions would be a greater negative for CGPH, given that the transactions under investigation constitute assets that generate substantially all of CGPH's operating cash flow. For CERP, Fitch estimates the LINQ/Octavius assets generate approximately 15% of total property EBITDA, or $90 million.

CEC's 'CC' IDR reflects the linkage between CEC and CEOC vis-a-vis CEC's collection guarantee of CEOC's credit facility and the possibility that CEC will be liable under the payment guarantee of CEOC's notes. CEOC released the notes' guarantee in May 2014; however, the first-lien and second-lien noteholders are contesting the release. CEC's 'CC' IDR is largely based on the risk that the litigating CEOC creditors prevail and CEC will be pulled into CEOC's insolvency proceedings via the guarantee. Fitch may upgrade CEC's IDR to 'CCC' or higher once the uncertainty around the parent guarantee is resolved.

CERP and CGPH Linkage

Fitch does not link the ratings of CERP and CGPH to CEOC or CEC given the tight restricted-payment covenants in these entities' debt documents. However, CEOC-related risks exist and weigh on the IDRs. The main risk is that the asset sales from CEOC are unwound or CERP/CGPH need to pay additional consideration if a court finds that less than fair value was received. The creation of Caesars Enterprise Services, LLC largely mitigates concerns over CERP/CGPH losing access to Total Rewards.

KEY ASSUMPTIONS

CERP

--Low to mid-single digit total revenue growth through the forecast period, driven primarily by strength on the Las Vegas Strip, while Atlantic City and Laughlin revenues remain flat.
--A mid-single digit decline in 2018 for Atlantic City due to the competitive impact from New York and Philadelphia new openings.
--Overall EBITDA margins (after corporate expense) hold steady between 27 - 28%. Fitch assumes a small margin decline for Harrah's Atlantic City from the 2018 competitive openings.
--Debt paydown follows the amortization schedule of the term loan at 1% annually and 50% excess cash flow sweep.
--$165 million in capex for 2015, dropping to 5% of revenue thereafter as maintenance capex focuses on Las Vegas Strip hotel renovations.

CGPH

Fitch forecasts total revenue growth to be flat in 2016 as low to mid-single digit growth in Las Vegas is offset by smoking ban effects in New Orleans. After 2016 we forecast low single digit growth in Las Vegas and flat growth in New Orleans.
--Overall EBITDA margins (after corporate expense but including 50% of management fees associated with CGPH's assets) remain steady around 25%. We assume a small margin decline for Harrah's New Orleans due to the smoking ban.
--Debt paydown follows the amortization schedule of the term loan and Cromwell credit facility, as well as the 50% excess cash flow sweep.
--Capex of $142 million in 2015, falling to $50 million annually thereafter for maintenance capex (including Planet Hollywood renovation).

Other Ceasars Assumptions

--CERP and CGPH's access to Total Rewards through Caesars Entertainment Services remains uninterrupted throughout CEOC's bankruptcy.
--The CERP and CGPH transactions under investigation are not reversed and no additional consideration to be paid is incorporated in Fitch's base cases.

RATING SENSITIVITIES

CERP (Fitch forecasts in parentheses)

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--A court orders a reversal of the Linq and Octavius Tower transfer;
--Discretionary run-rate FCF declining towards $0 (FY16: $111 million and FY17: $121 million);
--CERP's debt/EBITDA exceeding 9x for an extended period of time (FY16: 7.6x and FY16: 7.4x).

Positive: No positive rating action is expected over the near-term given the company's high leverage and the CEOC related risks. However, positive rating action may result from:
--CEOC's debt being restructured without having a material adverse effect on CERP;
--Discretionary run-rate FCF sustaining above $100 million (FY16: $111 million and FY17: $121 million);
--Debt/EBITDA declining below 6.5x (FY16: 7.6x and FY17: 7.4x).

CGPH

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--A court orders a reversal of the Las Vegas/New Orleans asset transactions;
--Discretionary run-rate FCF declining towards $0 (FY16: $91 million and FY17: $100 million);
--CGPH's debt/EBITDA exceeding 9x for an extended period of time (FY16: 6.0x and FY16: 5.7x).

Positive: No positive rating action is expected over the near-term given the CEOC related risks. However, positive rating action may result from:
--CEOC's debt being restructured without having a material adverse effect on CGPH;
--Discretionary run-rate FCF sustaining above $100 million (FY16: $91 million and FY17: $100 million);
--Debt/EBITDA declining below 6.5x (FY16: 6.0x and FY17: 5.7x).

CROMWELL RATING CONSIDERATIONS

The Cromwell is unrestricted subsidiary of CGPH and Fitch views The Cromwell's credit largely on a standalone basis, which is consistent with its 'B-' IDR. Fitch believes that Cromwell is becoming more strategically integral to CGPH given its ramp up over the past year, increasing profitability, prime location on the Strip, and focus on the millennial-based amenities such as the Drai's club.

LIQUIDITY

CERP and CGPH both have adequate liquidity and manageable maturity schedules. Excluding cage cash and inclusive of revolver availability, total liquidity for CERP is $332 million and $175 million for CGPH. Term loan amortization for both entities is manageable at 1% per year. Both generate healthy free cash flows.

FULL LIST OF RATING ACTIONS

Caesars Entertainment Corp. (CEC)
--Long-term IDR affirmed at 'CC'.

Caesars Entertainment Resort Properties, LLC (CERP)
--IDR affirmed at 'B-'; Outlook Stable;
--Senior secured first-lien credit facility affirmed at 'B+/RR2';
--First-lien notes affirmed at 'B+/RR2';
--Second-lien notes affirmed at 'CCC/RR6'.

Caesars Growth Properties Holdings, LLC (CGPH)
--IDR affirmed at 'B-'; Outlook Stable;
--Senior secured first-lien credit facility affirmed at
'BB-/RR1';
--Second-lien notes affirmed at 'B-/RR4'.

Corner Investment PropCo, LLC (The Cromwell)
--Long-term IDR upgraded to 'B-'from 'CCC'; Outlook Stable
--Senior secured credit facility upgraded to 'B+/RR2' from
'B-/RR2'.