The unraveling of Caesars Entertainment Corp.’s complicated financial structure began Thursday when the casino operator placed its largest business division into bankruptcy, taking the initial steps to eliminate almost $10 billion in debt.
The pre-packaged filing covering Caesars Entertainment Operating Co., has been agreed upon by 80 percent of the company’s senior bondholders. It was filed in the U.S. Federal Bankruptcy Court in Chicago. The company hopes to emerge from bankruptcy later this year.
The action comes after several months of negotiations between Caesars officials and the company’s primary bondholders and lenders over restructuring a large portion of the Las Vegas-based gaming operation’s $22.8 billion long-term debt, highest in the casino industry.
In the filing, Caesars said the company “would need to provide substantial financial and continuing operational support for any proposed restructuring.”
U.S. Bankruptcy Judge Benjamin Goldgar in Chicago granted a series of routine motions Thursday, allowing the casino operator to pay employees and critical vendors and maintain its customer rewards program.
Caesars spokesman Stephen Cohen of Teneo Strategy said the judge’s rulings Thursday “represents an important, positive step that will help ensure that business operations continue normally at all of our properties.”
Meanwhile, a Delaware bankruptcy judge said Thursday he would issue a modified stay order that would prevent CEOC from moving ahead with the bankruptcy. On Monday, junior-level creditors, who are owed $41 million and believe they will be cut out of the restructuring efforts, filed an involuntary bankruptcy petition against Caesars. The judge in Delaware said the order would not block filings in the Chicago court.
UNLV Boyd School of Law professor Nancy Rapoport, who specializes in bankruptcy matters, called competing bankruptcy filings in different states “a little unusual.”
Because Caesars operates two casinos in Illinois, Harrah’s Metropolis and Harrah’s Joliet, it could file there.
“The easiest thing is to dismiss the involuntary case,” Rapoport said of the Delaware case. “The unsecured creditors are just trying to take control and preserve their rights.”
Caesars Entertainment Chairman and CEO Gary Loveman said in a statement the bankruptcy filing is “in the best interests of all of CEOC’s stakeholders.” He said the outcome “will result in a sustainable capital structure for CEOC” and create value for stakeholders.
“The restructuring of CEOC is the culmination of a years-long effort to improve the health of CEOC’s balance sheet, which has included substantial investment in new and upgraded assets, especially in Las Vegas,” Loveman said. “I am very confident in the future prospects of our enterprise, which will combine an improved capital structure with a network of profitable properties.”
But Fitch Ratings Service downgraded its opinion of Caesars following the bankruptcy filing.
In a statement, Fitch analyst Alex Bumazhny said the downgrade reflected Caesars missing a $225 million interest payment last month on second-lien notes.
“Fitch estimates full recovery for CEOC’s credit facility lenders, with 87 percent recovery for the first-lien note-holders and less than 10 percent recovery for the remainder of the capital structure,” Bumazhny said.
Moody’s Investors Service also lowered its rating.
Caesars operates 40 casinos in 14 states and Canada, including 10 on or near the Strip. The iconic 4,250-room Caesars Palace is the only Las Vegas property covered by the CEOC bankruptcy filing.
Company officials have said the bankruptcy filing and financial restructuring will not affect day-to-day operations of its hotels and casinos, its interactive gaming operations or the company-owned World Series of Poker. Nor will Caesars’ 45 million-member Total Rewards customer loyalty program be disrupted.
In an online video, Loveman said the company’s more than 30,000 employees would continue to be paid. Caesars set up a website, www.ceocrestructuring.com, for information related to the reorganization.
The company has appointed Alix Partners Managing Director Randall Eisenberg as chief restructuring officer.
CONVERTING INTO REIT
Under the voluntary bankruptcy plan, Caesars seeks court approval to convert CEOC into a publicly traded real estate investment trust. CEOC is the largest of Caesars’ operating units and controls the flagship Caesars Palace, Caesars Atlantic City, Harrah’s Reno and more than a dozen regional properties.
The REIT concept would split CEOC into two companies, including one owning real estate for many of the company’s casinos. A second company would manage the properties. It’s unclear which resorts would be placed in the REIT.
CEOC carries $18.4 billion of the company’s total debt. The bankruptcy restructuring, which could take up to a year to complete, would reduce the division’s debt to $8.6 billion. Annual interest expense would be reduced by about 75 percent, from about $1.7 billion to about $450 million.
The property company would lease to-be-determined hotel-casinos to the management company for annual payments of $635 million. The lease payments will be guaranteed by Caesars Entertainment.
Senior-level creditors would receive a combination of equity in the company, cash and new debt in return for their support of the reorganization plan. Caesars said the agreement with first-lien bondholders is contingent on dismissal of four creditor lawsuits against the company.
According to the bankruptcy filing, Clark County is the No. 2 unsecured creditor to CEOC. The county is owed $46.9 million for “special improvement bonds.”
County spokesman Erik Pappa said the money covered putting power transmission lines underground on Flamingo Road from Koval Lane to Interstate 15, on Caesars land. He said the filing is wrong — the debt is actually secured — and county is seeking to correct the bankruptcy petition.
Another Caesars operating affiliate, Caesars Growth Partners, would merge back into the parent company after the bankruptcy is concluded to provide Caesars $1.7 billion in reorganization cash.
Caesars Growth Partners, formed less than two years ago, is 58 percent owned by Caesars Entertainment. It owns Planet Hollywood, the company’s majority stake in the Horseshoe Casino Baltimore, Caesars Interactive Entertainment, Bally’s Las Vegas, The Linq Hotel, The Cromwell and Harrah’s New Orleans.
The division became the focus of creditor lawsuits last year that accuse Caesars Entertainment of having “looted” the best properties from the parent company by removing them from the restructuring puzzle. Similar language was used in the junior creditors’ involuntary bankruptcy filing.
The restructuring will also require the approval of Nevada gaming regulators and of gaming regulators in states where Caesars operates casinos.
Caesars accumulated the bulk of its debt in 2008 when it was acquired by private equity companies TPG Capital and Apollo Global Management in a $29 billion leveraged buyout.
Contact reporter Howard Stutz at firstname.lastname@example.org or 702-477-3871. Find him on Twitter: @howardstutz