Caesar’s empire crumbling as unit files for Chapter 11

March 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

As part of a wider corporate restructuring procedure, Caesars Entertainment Operating Co (CEOC) was placed in Chapter 11 bankruptcy protection in January by the division’s parent company, Caesars Entertainment Corporation.

The unit’s bankruptcy filing, which occurred in Chicago, Illinois, comes as the wider Caesar group attempts to wrestle with an insurmountable debt pile of $18.4bn. Under the company’s current restructuring plan, Caesars hopes to remove around $10bn worth of debt, a scheme which has the support of the company’s senior noteholders.

In its Chapter 11 documentation, CEOC, Caesar’s largest unit, listed assets and liabilities of over $1bn. In addition to the company’s debt reduction, CEOC’s restructuring plan would greatly reduce the firm’s annual interest expenses. Indeed, the company noted that its interest expenses would be reduced by approximately 75 percent, from around $1.7bn to approximately $450m. The restructuring, once completed, will see CEOC converted into a real estate investment trust (REIT) which will be divided into two companies. One of the companies will own the group’s network of casinos and hotels while the other will rent and manage the properties.

The decision to file for Chapter 11 bankruptcy follows months of frenzied negotiations between the company and its creditors, and represents the final stage of Apollo Global Management LLC’s attempts to recoup its $1.7bn investment in the company. Apollo and fellow private equity firm TPG Capital acquired the company in 2008 and it has been announced that the two firms will be fully reimbursed under the terms of the company’s restructuring deal. Half of the company’s other creditors will see their claims wiped out entirely, however. Though CEOC’s restructuring plan has won the approval of around 80 percent of the company’s first lien noteholders, there have been some dissenting voices; three junior creditor hedge funds, which between them are owed $41m by CEOC, are opposed to the restructuring deal.

During the Chapter 11 process, CEOC has announced that its 38 casino-hotels, including Bally’s and Caesars in Atlantic City and Caesars Palace in Las Vegas, will continue to operate as normal. Furthermore, the company also intends to continue to pay its suppliers in full. According to CEOC’s Chapter 11 paperwork, 18 of the company’s properties have been included in the bankruptcy filing. The majority of Caesars Palace Las Vegas, two casinos in Atlantic City, and a dozen smaller casinos under the Harrah’s or Horseshoe brands have been included. A number of the firm’s other properties were omitted, including Playboy Club London and some Caesars properties in Las Vegas.

“Today, with the overwhelming support of our first-lien bondholders, we are moving forward to implement our previously announced restructuring plan, which is intended to strengthen CEOC’s financial condition and significantly reduce debt,” said Gary Loveman, chairman of CEOC. “We believe this restructuring is in the best interests of all of CEOC’s stakeholders and will result in a sustainable capital structure for CEOC and value creation for all 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. I am very confident in the future prospects of our enterprise, which will combine an improved capital structure with a network of profitable properties.”

CEOC’s financial struggles must be considered within the context of the ongoing turmoil at the firm’s parent company, Caesars. Once the world’s largest gambling company, Caesars has been laid low in recent years. The financially crippling leveraged buyout completed by Apollo and TPG in 2008 came on the eve of the global financial crisis, plunging the company into considerable debt. Given the extent of the company’s debt, Caesars was unwilling to commit to an expansion outside of its established US markets while rival firms were able to make significant inroads into emerging gambling markets in Asia, particularly in Macau, China.

CEOC has appointed Randall Eisenberg as the firm’s chief restructuring officer. Mr Eisenberg will be responsible for overseeing the company’s Chapter 11 plan and executing any restructuring transactions at an operational level.

Richard Summerfield