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Caesars units combine before bankruptcy
From the Financial Times of Mon, 22 Dec 2014 17:33:42 GMT
Las Vegas, USA - May 22, 2012: Caesars Palace is a hotel and casino that opened in the 1960's in Las Vegas. One of the many towers of Caesars Palace is seen here at night with Olives restaurant of the neighboring Bellagio Hotel and Casino in the foreground.©Dreamstime

Two listed units of Caesars Entertainment, the troubled casino and resort company, are combining in an attempt to build credibility with creditors ahead of a planned bankruptcy protection filing for its operating unit, due in the coming weeks.

Caesars Entertainment, the parent company, will acquire its affiliate Caesars Acquisition Co in a stock-for-stock transaction that will give the combined entity a market capitalisation of $3.2bn, the company said.

The transaction, which boosts the parent company’s assets and cash position, is designed to cut the amount of external financing the heavily indebted operating company, Caesars Entertainment Operating Co might need in a bankruptcy, thereby reducing any dilution of existing investors.

In midday trading in New York, shares in Caesars Entertainment were up 15.1 per cent at $15.53 and shares in Caesars Acquisition were up 6.25 per cent at $10.06 as investors reacted positively to the news.

The transaction is the latest in a long series of asset shuffles. Caesars Acquisition was originally created to hold the company’s valuable online gaming operations and was almost entirely owned by the parent company before it was spun off in November 2013. Caesars Acquisition also holds properties including Planet Hollywood and the newly renovated Quad Hotel in Las Vegas, now rebranded as the Linq Hotel.

By reuniting Caesars Acquisition and its parent after little more than a year, Caesars and its owners, buyout firms Apollo Global Management and TPG, have created a less indebted vehicle that can put up money to assist in the debt restructuring through the bankruptcy court.

Apollo and TPG paid about $30bn for what was then Harrah’s just as the buyout boom years were coming to an end, leaving the company with little cash to ride out hard times or invest in new initiatives in newer, healthier markets such as Macau.

On December 19, Caesars said it had reached agreement with a group of senior bondholders on the terms of a restructuring that would reduce the debt load of the operating unit from $18.4bn to less than half that amount. As part of that restructuring, the parent has offered to guarantee certain payments to creditors.

But many creditors have expressed scepticism about the merits of the deal and the ability and willingness of the parent company to make good on its offers. As a result of those doubts, creditors say less than 40 per cent of the most important group of creditors, holders of the senior bank debt, support the deal as it now stands.

The company’s strategy has always been to get the senior lenders on board before taking on the more junior creditors who are facing big losses. But the task is complicated by the fact that many creditors have positions in both classes of debt. The junior creditors say they have great leverage in talks because of their willingness to play hardball.

“The second liens will chase every asset that Caesars took away from the operating company at the expense of creditors,” says one person involved in the matter. “This is about violating the law.” A spokesman for the company said it was confident such claims will not prevail in court.

Some creditors say the fact that Caesars is offering to put up money to facilitate any restructuring shows the merit of debtholders’ claims. In some restructurings, companies have ended up putting up far more money than they originally expected to do. That means the process is likely to be “an unbelievable donnybrook” or fracas, as one holder of both first and second lien debt says.

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