Caesars Entertainment Corp to sell casinos in $2.2bn deal


Financier Worldwide Magazine

April 2014 Issue

April 2014 Issue

Private equity backed Caesars Entertainment Corporation, which was known as Harrah’s Entertainment until 2010, announced in March that it would sell four of its casinos to its spinoff, Caesars Growth Partners. The sale of the resorts is the latest attempt by Caesars to get the group on an even keel financially. 

Under the terms of the transaction, the four casinos, Bally’s Las Vegas, the Cromwell, the Quad and Harrah’s New Orleans, will be sold to Caesars Growth Partners, LLC for $2.2bn, including the assumption of $185m worth of debt and committed project capital expenditures of $223m. Caesars Entertainment still owns a 58 percent stake in Caesars Growth Partners. 

The deal for the four venues was approved by special committees of the boards of both companies; the committees were made up of independent directors. The acquisition of the casinos by Caesars Growth Partners is subject to the customary closing conditions, including the usual regulatory approval. Both companies anticipate that the deal will close in the second quarter of 2014. 

Caesars Entertainment was taken private in 2008 by private equity firms Apollo Global Management and TPG Capital in a leveraged buyout of around $30bn. However, disastrously for the firms, the acquisition of the group came on the cusp of the financial crisis. As a result, both Apollo’s and TPG’s investment in Caesar has fallen well short of expectations. The firms’ respective investment funds TPG Partners V and Apollo Investment Fund VI, paid around $90 per share or $6bn for the group. 

The global financial slowdown had a severe impact on the US gambling and casino industry. This, combined with the highly leveraged nature of the buyout of the former Harrah’s, Caesars Entertainment has found itself in a dire financial state. 

In order to stabilise the company financially, in 2013 the group spun off Caesars Growth Partners in the hope of achieving greater financial flexibility. The company currently has a debt load exceeding $20bn as well as declining revenues and low levels of liquidity. Caesars Entertainment currently operates a portfolio of casino throughout the US, however its main operations are located within the country’s traditional gambling hotspots of Las Vegas and Atlantic City, New Jersey. 

“Since being taken private near the beginning of the global financial crisis, we have faced an incredibly challenging business environment and a highly leveraged capital structure. Despite these obstacles, we have invested significantly in the growth of our network and the enhancement of our assets while concurrently deploying a wide array of financial and operational tools to manage the company’s capital structure and create value,” said Gary Loveman, chairman and chief executive of Caesars Entertainment. “Entering 2014, I am very excited about our new customer offerings. Across our network, we have recently opened or will open promising new projects and amenities, such as the LINQ and High Roller and upgrades throughout Las Vegas. We also share in the economic benefits associated with Caesars Growth Partners, including considerable growth last year at Caesars Interactive Entertainment Inc, through social and mobile games and the launch of real-money online gaming in Nevada and New Jersey.” 

The company’s private equity owners have attempted to turn the tide in Caesars’ favour. In 2012, Apollo and TPG launched a public offering for a 1.4 percent stake of Caesars. However, the group’s debt pile, coupled with the economic crisis and the group’s failures in Macau, the Chinese territory that has proved so lucrative for a number of other Las Vegas resorts, have crippled the company. In September 2013 Caesars Entertainment tried again to stabilise itself financially, when the group attempted to raise around $4.4bn to refinance its commercial mortgage-backed securities as well as a $450m senior secured credit facility. Caesars has also changed its debt agreements in order to provide itself with additional breathing room.

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Richard Summerfield

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