Caesars bonds climb as revenues improve, despite wider loss; CEDC debt declines after earnings

By Stephanie N. Rotondo

Portland, Ore., Feb. 29 - The distressed debt market was again taking a backseat to new issues Wednesday, though there were some credits that managed to share the spotlight.

Caesars Entertainment Corp., for example, was moving around after the company reported earnings. The bonds climbed despite a wider loss, as the Las Vegas-based casino operator said Las Vegas revenues improved.

In other earnings news, Central European Distribution Corp.'s wider fourth-quarter loss put pressure on the company's debt. A trader said the decline was one of the more notable moves of the day, though actual trading in the name was thin.

Elsewhere, Hovnanian Enterprises Inc.'s bonds were up modestly to unchanged on the day. On Tuesday, the company reported preliminary net contracts for its first fiscal quarter, which showed a 27% increase.

Caesars debt climbs

Caesars Entertainment reported a wider fourth-quarter loss, but said that revenues from its Las Vegas properties improved.

The increase in revenues spurred investors to push up the company's bonds.

"They had good numbers," a trader said, seeing the 10% notes due 2018 shoot up to 77 "right away," as the midweek session began. The notes hit a high of 78, before settling back in to 77 bid, 77½ offered, he said.

That compared to Tuesday's closing levels of 753/4, he added.

Another trader said the paper was "straddling 78," quoting the bonds at 77 bid, 78 offered.

A third market source called the 10% notes up nearly 2 points at 77½ bid.

For the fourth quarter, Caesars saw net revenues gain 2.4% to $2.17 billion. The company attributed the increase to higher revenues in Las Vegas, as well as from its international and online businesses.

Net loss, however, widened by 12.2% to $220.6 million. The loss was attributed to higher interest expense.

For the year, revenues increased slightly to $8.83 billion. Net loss declined by 17.3% to $687.6 million from $831.1 million.

"The continued growth in Las Vegas was driven by robust international play and higher room and occupancy rates at our properties," said Gary Loveman, chairman, president and chief executive officer of Caesars Entertainment, in the earnings statement.

"The outlook for continued strong group bookings and increased visitation to that market bodes well for the success of our Caesars Palace projects, including the Nobu hotel tower and restaurant additions and the Octavius Tower completion, which opened to the public in January this year."

Loveman also noted that the company realized $63 million in incremental expense reductions in the fourth quarter from cost-cutting initiatives.

"I'm confident that our overall operational performance, organizational streamlining, financial enhancements and growth projects already under way are positioning us for sustainable growth in the years ahead," he said.

CEDC weakens post-numbers

Central European Distribution, or CEDC, also came out with earnings on Wednesday, reporting a larger loss for the fourth quarter.

A trader said the company's 9 1/8% notes due 2016 were "lower after the numbers," seeing the paper fall to the low-70s from the high 70s.

He quoted the notes at 71 bid, 73 offered.

The company's stock (Nasdaq: CEDC) dropped $1.06, or 19.56%, to $4.36, as the company warned it didn't have enough money to pay its 2013 maturities.

For the quarter, the Mt. Laurel, N.J.-based alcohol distributor reported a net loss of $456.1 million, or $6.29 per share. That compared to a loss of $103.2 million, or $1.47 per share, the year before.

Net sales, however, were better at $280.1 million, versus $228.4 million the previous year.

"Although the fourth quarter of 2011 showed marked improvement as compared to the prior year in many of our business units, primarily Poland, RTD and the Ukraine, our largest market and business in Russia under-performed the market and our expectations," said William Carey, president and CEO, in a press release. "We also experienced a large foreign-exchange loss as local currencies experienced declines against the euro and dollar for the quarter.

"The operating environment in Russia continues to be difficult especially with continued spirit price increases and heavy discounting going on in the market," he added.

In the release, the company also noted that it has been reviewing its strategic alternatives "in light of its upcoming financial obligations, in particular the company's 3% convertible senior notes due 2013." CEDC said it would not have enough cash available to fund the upcoming payment "given the challenging market conditions and a difficult operating environment."

As such, the company is reviewing all of its options "and is not ruling out any transaction that is in the best interests of stockholders." Potential options include a strategic alliance, asset sales or an exchange offer.

If CEDC defaults on the 3% converts, that would also accelerate the 9 1/8% notes and the 8 7/8% notes due 2016.

Hovnanian steady despite contract gains

Red Bank, N.J.-based homebuilder Hovnanian Enterprises said Tuesday that its preliminary net contracts for the first quarter ending Jan. 31 were up 27% from the previous year.

Come Wednesday, however, the company's debt was little affected.

A trader saw the 10 5/8% notes due 2016 "pretty much unchanged" at 93 3/8. A second market source called the issue up half a point at 931/2.

In the first three months of Hovnanian's fiscal year, net contracts were 1,079, up from 850 a year prior.

The company noted that the stronger trends appeared to be continuing into February.

Full financial results are expected next week.

James River holding in

A trader said James River Coal Corp.'s 7 7/8% notes due 2019 were not much changed by news Standard & Poor's had placed the company on negative watch.

He saw the notes trade around the 68 mark.

"Not much traded," he added.

S&P based its action on the belief that the coal company's 2012 operating performance will be lower then previously expected, due to weaker demand for coal.

Broad market mixed

Among other distressed issues, ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 traded down nearly a point to 65 3/8, a trader said.

Another trader saw Clear Channel Communications Inc.'s 10¾% and 11% notes due 2016 strengthening gain as the market prepares for the company's new deal.

The pegged the notes at 82 and 801/2, respectively.

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