Caesars Entertainment Corp. announced a deal Monday to sell three of its Strip resorts and Harrah’s New Orleans to its Caesars Growth Partners subsidiary for $2.2 billion.
The move is more akin to a transfer of assets to a company that was created last year to help the world’s largest casino operator expand its footprint while dealing with its gaming industry-high $23 billion of long-term debt.
Caesars Growth Partners already owns two of the company’s casinos, a hotel tower and Caesars’ interactive gaming business. Caesars Entertainment owns 58 percent of Caesars Growth Partners.
The casino operator will continue to manage the properties after the deal is finalized.
The transaction will result in cash proceeds of $1.8 billion and allow Caesars to reduce a portion of its debt.
“Today’s asset sales mark an important step in our ongoing efforts to repair Caesars Entertainment’s balance sheet,” Caesars Chairman and CEO Gary Loveman said in a statement.
Caesars Entertainment will transfer ownership of Bally’s Las Vegas, The Quad, the under-construction Cromwell, and Harrah’s New Orleans to Caesars Growth Partners for $2.2 billion.
As part of the deal, Caesars Growth Partners will assume $185 million of debt associated with The Cromwell — formerly Bill’s Gamblin’ Hall — and will spend $223 million to finish redevelopment of The Quad, which had been the Imperial Palace.
“To build equity value, we have employed a full complement of operating and financial tools,” Loveman said. “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.”
Loveman said Caesars has grown the company while “deploying a wide array of financial and operational tools to manage the company’s capital structure and create value.”
Investors had a mixed reaction to the news. Amid a broad market sell-off, shares of Caesars Entertainment, traded on the Nasdaq Global Select, fell 37 cents or 1.43 percent to close at $25.59. Shares of Caesars Acquisition, the subsidiary that manages Caesars Growth Partners, fell 12 cents or 0.87 percent to close at $13.63 on the Nasdaq Global Select.
Eilers Research gaming analyst Adam Krejcik told investors the deal was positive for Caesars Entertainment shareholders, but a “neutral-to-negative” event for Caesars Acquisition shareholders. In a research note, he said the acquisition of four casinos diminishes the reliance on the growing interactive business, which includes social gaming and online gaming in Nevada and New Jersey.
“By acquiring four casino properties, it creates a far more convoluted business model and one that has shifted away from the high-growth/high-margin online business that likely attracted many investors in the first place,” Krejcik said
Moody’s Investors Service said Monday it placed the rating of Caesars on review for a downgrade because of the announcement.
“The sale will provide Caesars with needed liquidity to fund operating losses,” Moody’s said in a statement. “However, the loss of (cash flow) from four properties, including three located in the better performing Las Vegas market, is negative for Caesars overall credit profile.”
Moody’s said the transaction “is likely the first in a series of steps to address (the company’s) unsustainable capital structure.”
The ratings service said Caesars probably would look at repaying a “yet to be determined amount of bank debt” and could repurchase existing debt at a discount, which Moody’s said probably would be deemed “a distressed exchange.”
The transaction, which will need approval of Nevada gaming regulators, is expected to close by the end of June.
Several of Caesars Entertainment major shareholders, including private equity firms TPG and Apollo Management, own shares of Caesars Growth Partners. Other investors include hedge fund billionaires John Paulson and George Soros.
The two private equity companies took Caesars private in 2008 in a $30.7 billion buyout.
Caesars Growth Partners currently owns Planet Hollywood, the under-construction Horseshoe Casino Baltimore, the Octavius Tower at Caesars Palace and Caesars Interactive Entertainment, which operates the World Series of Poker and the company’s online gaming ans social gaming operations.
Because of the transaction, Caesars Entertainment told investors the company expects to report fourth-quarter revenue of between $2.05 billion to $2.11 billion and a net loss of between $1.7 billion to $1.82 billion when the it releases results next week.
“For the fourth quarter, performance in some of our regional areas, particularly Atlantic City, was disappointing,” Loveman said. “We are, however, encouraged by volume and visitation trends in Las Vegas.”
Contact reporter Howard Stutz at email@example.com or 702-477-3871. Follow @howardstutz on Twitter.