Caesars hails new opportunities

Caesars hails new opportunities

Monday, October 9, 2017 Posted by Joseph Streeter
After almost three years operating within bankruptcy protection, Caesars Entertainment has finally managed to re-order itself, less nearly $20bn in debt

Three years after being dragged through the courts by grievously unhappy creditors and a decade on from a hubristic billion-dollar leveraged buyout that could not have been worse timed, one of the most storied names in US gaming has finally emerged from bankruptcy protection.

Caesars Entertainment, it is fair to say, has endured a tumultuous decade and one where its continued existence came into question on more than one occasion. Following a $31bn takeout in 2008 led by private equity groups TGP and Apollo Global Management, Caesars subsequently became mired in the economic downturn and a series of contentious corporate restructurings whose only achievement, arguably, was to further antagonise its creditors.

The disagreements led to legal challenges, bankruptcy protection and ultimately – after almost three years of limbo, a reorganisation in the creditors favour.

Hence on Friday last week Caesars Entertainment was able to announce a new (simplified) structure, a new board, a greatly reduced debt burden, and high hopes it can put its recent past behind it.

Among the key points is a new ownership structure that hands nearly 60 percent of the equity Caesars Entertainment Operating Co (CEOC) to creditors and importantly, the debt load has been slashed to $9.6bn compared to $25.6bn prior to entering Chapter 11 bankruptcy proceedings. That rebasing will save Caesars approximately $260m in annual interest payment.

The company that has emerged from the agreement is actually two companies; an operating company and a newly-created independent real estate investment trust (REIT) called Vici Properties. This mirrors the relatively recent restructuring at rival Las Vegas and regional operator MGM Resorts International. The creditors also wholly own the REIT and it will collect an annual rent of $165m from the Caesars Palace property in Las Vegas and a further $465m a year from the other properties around the country.

The operating company now runs 47 casinos in 13 US states and in five other countries, including the UK where it runs eight properties.

The chief executive Mark Frissora, who joined at the start of the bankruptcy process in February 2015, continues in his post but a new board has been appointed to support him including a new chairman, James Hunt, who previously worked for 10 years at The Walt Disney Company.

Frissora said that with an enterprise value of approximately $20bn Caesars was “positioned with a solid foundation to pursue a diversified growth strategy.”

He pointed out that even as the lawyers were fighting over the company’s future in a courtroom in Chicago, the management

maintained and improved the business as the fundamentals of the casino business improved in Nevada and elsewhere.

"Throughout the restructuring process, Caesars has invested significantly to upgrade and renovate its facilities,” he said.

Indeed, capex between 2015 and the end of this year is expected to total $1.5bn. “We are also executing hundreds of initiatives to generate incremental revenue, as well as to enhance operational efficiency, guest experiences and employee engagement through technology-driven innovation and process improvement.”

The company noted it also had $2bn of cash available for further investment. Plans include the development of a convention centre in Las Vegas and the potential for unspecified expansion in other markets.

In its most recent results, Caesars said that revenues for the three months ot June rose 1 percent year-on-year to just slightly over $1bn with strong gaming revenues being offset by poorer than usual hold, primarily in baccarat. Property EBITDA was up over 2 percent to $311m for the period.

In the presentation accompanying the results statement, Caesars spoke about various plans to expand its gaming operations. This includes an esports partnership with Microsoft involving tournaments in both Atlantic City and Las Vegas, a deal with Chinese online gaming and media giant Tencent to promote the World Series of Poker (WSOP) in Asia and a new WSOP format that will enable live television coverage of the main event throughout the tournament.

For all the relief at managing to extricate the company from the claws of bankruptcy, though, the task facing the new board remains largely the same as the situation that confronted TPG and Apollo in 2008 – the lack of a presence in Asia.

While major rivals MGM, Wynn Reports and Las Vegas Sands all have properties in Macau, Caesars remains a western hemisphere casino operator only. If it is to catch up with the major players in the space, it too will need to establish a presence in one or other of the growth markets of Macau, Singapore or, should the political winds remains favourable, in Japan.

Totally Gaming says: Although Caesars is a little way off getting back on a level playing field with its major rivals, the very notion that the casino is back on the road to recovery and breaking free of the shackles of bankruptcy is a positive step. The expansion ambitions that have been shown by Caesars are the ingredients that are required should they hope to increase the speed of the recovery process.

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