Updated 

Caesars subsidiary hires investment bank to restructure debt


A subsidiary of Caesars Entertainment Corp. has hired an investment bank to restructure a portion of the company’s gaming industry-high $23 billion in long term debt.

Financial media reported late Monday that Caesars was working with investment bank Lazard Ltd. on a financial restructuring effort.

However, a person familiar with the matter but not authorized by the company to speak on its behalf, said an entity of Caesars hired Lazard as part of the company’s efforts to address its debt.

Analysts had mixed reactions to the news, which was not announced by the Las Vegas-based casino company. The company operates more than 40 properties throughout the U.S. and the World Series of Poker. Its 10 Strip-area casinos include Caesars Palace, Harrah’s Las Vegas, the Rio, Bally’s Las Vegas and the under-construction $550 million Linq development.

“Why now? There is nothing new in Caesars capital structure that would suggest an immediate need to restructure,” KDP Investment Advisors gaming analyst Barbara Cappaert said in a research note.

However, RBC Capital Markets gaming analyst John Kempf told Bloomberg News that a restructuring was the next step in the process for Caesars to address its debt.

“We all think that this is coming sooner rather than later,” Kempf said.

Sources hinted that the agreement with Lazard is with Caesars Acquisition Co., a separate publicly traded company that was spun off from Caesars Entertainment last fall to seize upon gaming industry expansion opportunities.

Caesars Acquisition is 57 percent owned by Caesars Entertainment and holds an option to buy back the rest in three years. Caesars shareholders participated in a stock sale for Caesars Acquisition, which raised more than $1.17 billion. The ownership of Planet Hollywood on the Strip, Caesars’ interactive gaming division and the company’s ownership stake in an under-construction casino in Baltimore were placed into the new entity.

In January, Caesars Acquisition said in a filing with the U.S. Securities and Exchange Commission that it appointed former Affinity Gaming Chairman Don Kornstein to its board. According to the filing, Kornstein has experience working on restructuring efforts.

Caesars took on the bulk of its debt when the company was taken private by private equity groups Apollo Global Management and TPG Capital in a 2008 leveraged buyout. The two firms, along with hedge fund billionaire John Paulson own roughly 80 percent of Caesars Entertainment, according to SEC filings.

Cappaert, who analyzes the company’s high yield debt for investors, said the company’s debt maturities over the next two years “are not too onerous.

In an interview with the Review-Journal last November, Caesars Entertainment Chairman Gary Loveman said a bankruptcy reorganization “was not an option” for the company. Loveman said Caesars Entertainment doesn’t have any significant debt maturities until 2018.

“The conditions the company faces today are better and not worse than they have been before,” Loveman said. “We’re much better structured. There is nothing that would trigger a liquidity crisis. We don’t have anything like that.”

Cappaert said it would take Caesars “a lot of convincing” with the bond markets to successfully swap out debt.

“The company does not need to restructure today,” Cappaert said. “We also expect, as was the case in past exchanges, that Caesars would look to offer below par exchanges for second lien debt and below.”

Shares of Caesars Entertainment gained 18 cents, or 0.83 percent, on Tuesday to close at $21.99 amid a broad market rally. Shares of Caesars Acquisition Co. gained 71 cents, or 5.85 percent, to close at $12.84.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.

 

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