Caesars’ new stock issue could raise $260 million

Caesars Entertainment Corp. put 10 million shares of the company’s common stock on the open market earlier this week as part of an effort to retire more than $4 billion of debt coming due later this year.

The stock sale on the Nasdaq Global Select could give the casino giant more than $260 million in proceeds, according to a Securities and Exchange Commission filing, if the underwriters, Credit Suisse, exercise an option to purchase 1.5 million shares.

Caesars Entertainment had 126.29 million shares outstanding as of Aug. 1. The company, which was taken private in 2008 through a $30.1 billion transaction, returned to the public markets in February 2012 with a relatively small stock sale.

Investors had a muted reaction to the stock sale. Shares of Caesars fell more than 5 percent on Thursday following a nearly 8 percent drop on Wednesday. On Friday, shares of Caesars fell 13 cents or 0.66 percent to close at $19.71.

Caesars’ stock price has been volatile in the past 52 weeks, trading in a range between $4.52 and $26.57. The share value had been climbing in recent weeks on speculation as to how the company was planning to reduce its long term debt of $23.5 billion, the highest in the gaming industry.

“While we would view the announcement as a slight positive for the bank loans and notes, the proceeds would do little to improve the leverage situation at the company,” RBC Capital Markets gaming analyst John Kempf told investors. “Given the relatively small amount and timing of the deal, one could assume that there may be alternate reasons for the issuance beyond debt reduction.”

A week ago, Caesars announced a debt restructuring plan to retire the old debt by raising new debt with a new and longer maturity date. A Caesars financial source, who is familiar with the deal but not authorized to speak on behalf of the company, said the restructuring would remove an obligation that was causing some in the investment community to speculate that the casino operator might have to file for bankruptcy reorganization.

He said the $4 billion of debt was the most significant and the “imminent maturity” of the company’s long-term debt.

The stock sale is part of the restructuring plan. Private equity groups Apollo Global Management and TPG Capital will see their majority ownership stake in Caesars decline from approximately 70 percent to 64 percent with the offering.

Caesars is backing the new loans with the 668-room Octavius Tower at Caesars Palace, which opened in January 2012, and the $550 million Linq development on the Strip, which is expected to open in February. The Linq includes 300,000 square feet of outdoor retail, dining and entertainment attractions, and the 550-foot High Roller observation wheel.

The company could raise as much $4.85 billion through bonds and new loans.

On Friday, Fitch Ratings said the refinancing of Caesars’ notes was a “slight negative” for the company’s debt ratings.

“The reported pricing on the first and second lien notes is also slightly higher than Fitch originally modeled,” the service said in a statement. “We still forecast a liquidity crunch at (Caesars) around 2015 based on (Caesars’) negative free cash flow as well as other uses of cash such as debt maturities.”

Caesars, which operates 10 resorts on or near the Strip and more than 50 casinos and resorts across the U.S., has faced a multitude of criticism this year over the company’s large debt.

In addition to The Linq in Las Vegas, Caesars is developing a casino in downtown Baltimore in partnership with Rock Gaming. Construction began on $440 million development, which will have a 122,000-square-foot casino with 100 table games, 2,500 slots and a 25-table poker room. The Horseshoe Casino Baltimore is expected to open in late 2014.

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