With the leveraged buyout Ceasars has been wrestling to pay its debts and has focused its energy on capital-markets transactions.
The Caesars Entertainment Operating Co. (CEOC) recently revealed how it plans to restructure as an operating company and a property company. This restructuring, in accordance with US gambling laws, came on the heels of its acquisition of the affiliate Caesars Acquisition Co. (CACQ).
The acquisition dubbed as a ‘stock for stock’ merger was made to shift around the $18.4 billion debt load incurred by its largest operating company. It will necessitate the parent company giving as much as $1.45 billion in cash to the operating unit to help fund the restructuring.
CEOC owner and operator and/or manager of some forty-four may come to be owned and controlled by a real-estate investment trust. The operating company and its creditors have been indulged in talks of Chapter 11 bankruptcy protection deal to come into effect by January 15.
Terms of new leases
The plan includes two separate leases. There is the one for the Caesars Palace Las Vegas facility called the ‘CPLV Facility’ to lease the facilities for $160 million a year. The other lease has been dubbed the ‘Non-CPLV Lease’. Both leases will have an initial 15 year term which will be subjected to four five-year renewal terms at the option of the respective tenant.
Indeed, Caesars Entertainment and its private-equity backers, Apollo Global Management LLC and TPG Capital LLP, decided to merge with CACQ in order come up with finances following operating company’s ‘leveraged buyout’ six years ago.
• $30 billion leveraged buyout in 2008
• CEOC manages 50 casinos in 13 US states and five countries
• Caesars Bankruptcy Restructuring involve five top 100 Firms
The buyout which cost $30.7 billion was Caesars only way to go, to honor its obligations.
Apollo and TPG will still have control of the combined company. Meanwhile, Gary Loveman, Caesars Entertainment Chairman and Chief Executive Officer, will head the company. The move is projected to see a fall in its debt from $18.4 billion to $8.6 billion.
There is a sixty-six percent stake in Caesars Acquisition company by the Hamlet Holdings LLC which is in turn an entity controlled by Apollo and TPG.The corporation which had begun losing money yearly since 2009 has now reported that since the announced merger, Caesars Entertainment has seen its shares soar 11% to $15 after trading as high as $16.47.
Share prices may fuel lawsuit
Caesars Entertainment’s $15 share price and the proposed exchange rate of 0.664 per share may mean that a price for Caesars Acquisition is about $10 per share. This is less than the $11.50 hoped for by stockholders. That could mean possible court battle between minority investors in Caesars Acquisition and Caesars.
Even though Caesars will need more creditors to back its restructuring plan, the merger will allow the land based and mobile casino operator to get rid of around 50% of its debt. Analyst Chris Snow says that “the merger gives clarity for the bondholders for how some of the funding would happen for the restructuring”.
These obvious restructuring moves come after the corporation has been grappling with decreased gambling revenues due to increased competition. Also Caesars has been unable to foreclose a deal to open in Macau. Following the coupled failure the company had no choice but to try wagering capital-markets transactions.
The deal will seek to strengthen investment in holdings such as the famed Planet Hollywood and Bally’s Las Vegas, online gambling sites in the US and other joint-assets with CACQ. The cash generated from the merger with CACQ will enable CEOC to finish its restructuring without additional major financing.
It is also believed that the merger will up Caesars Entertainment’s guarantee of lease payments to be made to the REIT. Under the reorganization plan, senior creditors would recover most of their investment while junior creditors, who are against the restructuring plan, may get ‘a small sliver of equity’.
Further good news is that the debt-ridden Caesars Entertainment Corporation gained 1.60% on December 23rd and an additional 0.13% on December 26th to close at $15.46. The company is currently valued at 2.23 billion today.