Caesars Entertainment Announces Corporate Reorganizations, Merger

Caesars Entertainment Corporation has announced a corporate reorganization that includes the absorption, via an all-stock merger, of former spinoff entity Caesars Acquisition Company.  Included within the merger’s framework is a makeover of another Caesars Entertainment unit, Caesars Entertainment Operating Company, Inc. (CEOC), the floundering entity which holds the majority of Caesars’ current $28 billion debt load.  CEOC’s reworking is an integral component of the overall reorganization, although it was announced in a separate presser.

The announcement of the reorganization quickly follows an agreement reached between Caesars Entertainment and a primary debtholder group announcing the CEOC restructuring.  That deal, between Caesars Entertainment (CEC) and a steering committee of first-lien noteholders of CEOC debt, clears the way for the CEOC unit to enter Chapter 11 bankruptcy proceedings while assuring that all Caesars properties will have a clear path for continuing operations.

According to Caesars, the CEOC bankruptcy filing will likely take place in mid-January.  Caesars Entertainment (which will now include the reabsorbed Caesars Acqusition Company), Caesars Entertainment Resort Properties and Caesars Growth Partners will maintain independent debt capital structures and will not be involved in the court-controlled bankruptcy proceedings.

The restructuring of the troubled CEOC unit as it enters bankruptcy includes the creation of two separate companies within CEOC itself, an operating company (“OpCo”) and a newly formed property holding company (“PropCo”).

Under terms of the deal, the PropCo will lease its real-property assets — the CEOC casino properties — to the OpCo for an annual payment of $647 million, which will be guaranteed by CEC.  As part of the deal, approximately $18.4 billion of old CEOC debt will be exchanged for $8.6 billion of new debt.  That rewriting will reduce annual interest expense from approximately $1.7 billion to approximately $450 million, a 75% reduction.

Said Gary Loveman, who serves as CEOC’s Chairman, “The planned restructuring of CEOC will allow us to establish a strong and sustainable capital structure for CEOC and maximize value for our stakeholders. I want to thank this creditor group for its support of the restructuring. We believe the financial restructuring plan we are announcing today is in the best interests of all of CEOC’s stakeholders. We look forward to continuing to welcome guests across our network throughout this process. Business operations at all properties and the Total Rewards program will continue as usual throughout the balance sheet restructuring process.”

The CEOC reworking, as agreed to by the debt holders, serves as the foundation of the larger Caesars Entertainment / Caesars Acquisition Co. merger.  That merger, to be accomplished via a stock swap, will produce a new Caesars Entertainment parent company with a total market capitalization of about $3.2 billion.

Under the terms of the merger, each outstanding share of Caesars Acquisition class A common stock will be exchanged for 0.664 share of Caesars Entertainment common stock.  After the swap is complete, 38% of Caesars Entertainment’s total share value will in the hands of former Caesars Acquisition Co. stockholders.

Actual control of CEC and its associated entities will continue to be in the hands of Apollo Global Management and TPG Capital, the two investment companies who first took Caesars private back in 2006 in a failed leveraged buyout, made at the height of last decade’s real-estate boom.  The massive debt load created through that deal first led to Caesars being re-offered publicly, and finally, to CEOC’s impending bankruptcy filing.

One executive transition was also announced.  Mitch Garber, the CEO of Caesars Acquisition Co., will be named the CEO of the Caesars Interactive Entertainment (CIE) division.  That includes Caesars’ online offerings, such as WSOP.com, and is a natural fit for Garber, a longtime veteran of the online industry.  Garber will also become the Vice Chairman of Caesars Entertainment (CEC) and will join that entity’s board of directors.