Deal does not reduce overall debt
Caesars Entertainment, in a move designed to avoid $1 billion in interest payments on its suffocating $23 billion debt load, has restructured its debt through a tender offer that creates new notes with longer maturity dates.
The deal, announced after the markets closed last Tuesday, avoids what was a looming default in 2015 on the interest payments, although it does nothing to reduce the overall debt load, taken on when the company was acquired in 2008 by private equity companies Apollo and TPG. Under the arrangement, Caesars plans to raise $1.75 billion in new debt to pay the 2015 interest. The company also plans to sell 5 percent of its equity to institutional investors at a future date.
The deal was announced a day before the operator announced first-quarter results reflecting a 1.9 percent drop in net revenues and 9.9 percent drop in adjusted EBITDA—and a day after Moody’s Investor’s Service predicted the company would have to restructure to avoid potential bankruptcy.
In a statement following the restructuring deal, Caesars CEO Gary Loveman said the company is laying the foundation “for both significant de-leveraging and value creation” for the operator.
“Upon completion of the credit facility amendment announced today, Caesars will have added headroom under its maintenance covenant, providing Caesars with additional stability to execute its business plan,” Loveman said. “If Caesars successfully lists its equity securities, this independent listing should help facilitate the eventual raising of equity as well as liability management and debt reduction initiatives.”
Investors reacted positively to the news, with Caesars shares up more than 8 percent in after-hours trading, after closing down 3.03 percent.
As part of its earnings release, Caesars announced that it has closed the sale of Bally’s Las Vegas, the Cromwell and the Quad to Caesars Growth Partners, a real estate investment fund created to split the debt load. Harrah’s New Orleans is also part of the sale, pending regulatory approval in Louisiana. The four-property deal is valued at $2.2 billion, and $185 million in assumed debt.
Caesars Growth Partners, 57-percent owned by Caesars Entertainment, also owns Planet Hollywood Resort, a tower at Caesars Palace, Caesars’ online and social gaming operations, the World Series of Poker and the under-construction Horseshoe Casino Baltimore.
The four Atlantic City properties Caesars owns got some attention during a conference call discussing the restructuring. Loveman said one or more of the company’s properties needs to close.
“There’s much too much capacity in Atlantic City currently,” Loveman said. “We’ve experienced that as the largest provider. So we are looking at all of our options to continue to reduce the cost of doing business here.”
In January, Caesars bought the failing Atlantic Club casino and closed it to reduce supply. He suggested that might happen again with one of the Caesars properties. While he didn’t identify any property, it’s likely that Showboat is on the chopping block. Caesars has been trying to sell it for some time. Caesars Atlantic City and Harrah’s Resort are both two of the most successful casinos in the city, and a new convention center is being built adjacent to Harrah’s. Bally’s, the company’s other casino, has recently added a WSOP poker room to capitalize on legal iGaming in New Jersey.
