Caesars Acquisition was spun out of Caesars Entertainment in November of 2013. At that time, Caesars Entertainment shareholders were allowed to buy stock in Caesars Acquisition for $8.64. The offering raised about $1.2 billion.
Last week, subsidiary Caesars Entertainment Operations Co. (CEOC) announced that it would commence a Chapter 11 reorganization in mid-January in which the company proposes to:
… convert its corporate structure by separating virtually all of its US-based gaming operating assets and real property assets into two companies, including an operating entity (“OpCo”) and a newly formed, publicly traded real estate investment trust (“REIT”) that will directly or indirectly own a newly formed property company (“PropCo”).
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Caesars Entertainment has struggled with a $22.8 billion debt, the highest debt load in the casino industry, and last month analysts at Fitch Ratings said that converting CEOC to a real estate investment trust (REIT) would be unlikely to prevent a bankruptcy filing to restructure that debt. Caesars Acquisition owns a 42% stake in CEOC, and the merger brings all the assets of CEOC back into one tent.
When CEOC announced its agreement last week, the company said:
The proposed transactions would reduce CEOC’s debt by approximately $10 billion, providing for the exchange of approximately $18.4 billion of outstanding debt for $8.6 billion of new debt. Annual interest expense would be reduced by approximately 75%, from approximately $1.7 billion to approximately $450 million. PropCo would lease its real property assets to OpCo in exchange for annual lease payments of $635 million, with the lease payments guaranteed by CEC [sic].
The merged companies will operate under the Caesars Entertainment name and maintain the ticker symbol CZR. Private equity firms Apollo Global Management LLC (NYSE: APO) and TPG Capital will maintain control of Caesars Entertainment. No estimated completion date was given for the transaction.
Monday’s announced merger boosted shares of both Caesars Entertainment, up nearly 19% to $16.02, and Caesars Acquisition, up more than 11% at $10.50.
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