Caesars Reorganizes Casino Properties to Juggle Debt Load
Financial analysts offered tepid commentary on Monday to an announced reorganization and sale of Caesars Entertainment properties in which four of the debt-ridden corporation’s casinos have been transferred to a spinoff subsidiary, Caesars Growth Partners (CGP).
The four casinos involved in the paper transaction include three center-Strip properties — Bally’s Las Vegas, the Quad, and the being-renovated Cromwell. The Cromwell (formerly Bill’s Gambing Hall) has yet to reopen under its new name, while the Quad is the old Imperial Palace property, which was also recently reworked. All three properties are a stone’s throw away from Caesars Palace itself.
The fourth property in the deal is Harrah’s New Orleans (Louisiana).
The sale of the properties to CGP will result in cash proceeds of $1.8 billion for Caesars Entertainment. That still represents less than 10% of the company’s $23 billion debt load, which exceeds any other American casino-entertainment corporation and is the unfortunate legacy of a highly leveraged buyout of Caesars (then Harrah’s) that occurred in the middle of last decade. That purchase, led by private-equity investment groups TPG and Apollo Management, took the company private just before the collapse of America’s housing bubble and a nationwide pulldown in both residential and business property values.
Caesars has since been publicly relisted. TPG and Apollo are also involved in Caesars Growth Partners, which was co-funded between Caesars Entertainment and yet another spinoff, Caesars Acquisition Company (CAC). CGP had previously been used as an investment vehicle for two other Caesars properties, Planet Hollywood and Horseshoe Baltimore. Even more importantly, CGP is the division under which the corporate family’s new WSOP.com online-poker offerings have been launched.
If all of the dealings still sound like a massive shuffling of paperwork to distribute corporate assets and debt load under a handful of separate business names, it is. Numerous industry analysts have suggested that the company might have to sell some of its properties or other cash cows — such as the “World Series of Poker” brand — to lower that debt load. Instead, Caesars has distributed its interests across several corporate entities, perhaps in the eventuality of declaring a partial bankruptcy at some point (if need be) while shielding many of the Caesars brands from any financial stigma.
The company, however, continues floundering in a sea of red ink. A Las Vegas Review-Journal update including the financial effects of the transaction reports that because of the paper sale of the properties, Caesars Entertainment (CZR on NASDAQ), will next week report quarterly net revenue of $2.05 to $2.11 billion, not much more than its paper loss for the quarter of $1.7 to $1.82 billion. CZR’s share price has been largely unaffected by the paper transaction, holding steady in the $25-27/share range while rebounding from a one-day market dip on Monday widely attributed to the political/military turmoil in Eastern Europe.
Caesars Acquisition Company issued a brie statement of the deal, noting that the properties included were all due for a continued influx of renovation capital, including the $223 million needed to finish the makeover of the old Imperial Palace as the Quad.
According to CAC, “The transaction will facilitate new investment in these properties, some of which require considerable capital expenditures to realize their full potential. In addition, Growth Partners will retain a 50% interest in the management fee revenues to be received by certain subsidiaries of Caesars Entertainment Operating Company, Inc., a wholly-owned subsidiary of Caesars Entertainment, in connection with the management of Bally’s Las Vegas, The Cromwell, The Quad (formerly Imperial Palace) and Harrah’s New Orleans. With this transaction, CAC is also announcing a $223 million renovation of The Quad.”
“‘The acquisition of these assets further aligns Growth Partners’ portfolio with attractive markets, especially Las Vegas,’ said Mitch Garber, chief executive officer of CAC. ‘Growth Partners is focused on acquiring and developing high-growth operating assets with strong value creation potential. These four properties will strongly complement our existing portfolio, particularly Planet Hollywood and our interest in Horseshoe Baltimore, which will open later this year. All of these properties will continue to benefit from participation in the Total Rewards network.'”