Caesars Merger Precedes Chapter 11 Filing

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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