Caesars restructuring operations to stay solvent
By Devin Banerjee and James Callan, Bloomberg
Caesars Entertainment Corp., the largest owner of U.S. casinos, said it’s creating a venture that will raise as much as $1.2 billion to finance growth investments and bolster the parent company’s balance sheet.
The venture, Caesars Growth Partners LLC, intends to buy a stake in Planet Hollywood Resort & Casino in Las Vegas and interests in the Horseshoe Baltimore casino project currently under development, according to a statement released April 23. Apollo Global Management LLC and TPG Capital plan to invest $500 million in the entity, combining the new investment with well-performing holdings in a structure less constrained by debt. Caesars said it expects to own a stake of at least 57 percent in the venture’s earnings.
Caesars Entertainment Corp. Chief Executive Officer Gary Loveman said, “The transaction is an important step in our ongoing efforts to improve the company’s balance sheet and position ourselves to make strategic investments.”
Caesars Entertainment, which owns two Statelin properties, has had financial problems for years. Photo/LTN file
Caesars is the parent company of Harrah’s Lake Tahoe and Harveys in Stateline.
Caesars, burdened by more than $20 billion in debt after the 2008 leveraged buyout by Apollo and TPG, has considered moves to strengthen its capital structure for the past five years. The Las Vegas-based company, which went public in 2012, didn’t want to sell more stock because it would dilute shareholders’ interests, and instead decided to sell growth-oriented holdings to raise immediate cash while still retaining a stake in those assets.
“The transaction is an important step in our ongoing efforts to improve the company’s balance sheet and position ourselves to make strategic investments,” Loveman said in the statement.
Caesars stock has more than doubled in value this year.
Caesars, bought by Apollo and TPG for $30.7 billion, has been losing money since the global credit crisis as a glut of hotel rooms led to the biggest Las Vegas gambling slump on record. The company earlier this year had its debt rating cut by Moody’s Investors Service to Caa2, as little as two levels above default. The casino operator may seek to extend its maturities at the expense of lenders, the ratings company said, giving some creditors a choice of immediate losses or the risk of default.
The company said in February that its fourth-quarter loss more than doubled because of costs related to Hurricane Sandy and a write-off at an Atlantic City property. In Atlantic City, where the company is the largest owner of casinos, gambling revenue fell 28 percent in November after Sandy forced casinos in the seaside resort to close for six days.
The new investment in the growth venture may increase to $1.2 billion if Caesars stockholders opt to buy a stake in the entity overseeing it, Caesars said. The company will receive the option to buy back all of the venture’s assets in the future, according to the statement.
Caesars was one of several jumbo-sized deals struck during a debt-fueled buyout spree from 2004 to 2007. Many of them, including Caesars, Texas utility Energy Future Holdings Corp. and media company Clear Channel Communications Inc., struggled with high debt and depressed earnings in the aftermath of the financial crisis. Some, including hospital chain HCA Holdings Inc. and retailer Dollar General Corp., have registered big gains for the buyout firms.
Apollo’s sixth flagship fund was carrying Caesars at one-fifth of its $1.34 billion investment as of Sept. 30, according to a marketing document obtained by Bloomberg News. Caesars had returned $158.8 million to the private-equity firm, the document shows.
While Caesars has dedicated $1.1 billion this year to sprucing up its properties, including the construction of the world’s second-biggest Ferris wheel, the payroll tax increase felt by many U.S. consumers is contributing to an estimated $300 million cash burn before capital expenditures, Moody’s said in an April 5 statement.
A business in which Caesars stands to benefit is Internet gambling, which was legalized in New Jersey, Delaware and Nevada in the last two years. Online gaming could generate as much as $210 million in revenue for the company and $84 million in earnings before interest, taxes, depreciation and amortization, according to Susan Berliner, an analyst at JPMorgan Chase & Co.
Mitch Garber, CEO of Caesars’s online gaming business, will be CEO of the new growth venture.
Scary for Anyone who has a stake in the success of Harvey s and Harrah’s On Stateline.
I also find it a bit creepy that a corporation of this size with is involved in the Local Tahoe issue’s. These guys do not give a S%&@ about Tahoe the Tahoe basin or anything related to these properties
Well Caesars’ indebtedness I guess explains why everything inside Harrah’s/Harveys such as carpet, furniture etc, looks so dilapidated and long overdue for a remodel?!
Also explains why Montbleu now has become the far more aggressive one in terms of marketing and trying to generate business!
Though it doesn’t explain Harrah’s/Harveys poor treatment of employees, as one would think if you’re short of cash, you’d try to generate cost-free goodwill?
Their business model is broken, severely broken.
Harrah’s is a company that never adjusted to the changing environment around them. Tribal gaming in California obliterated the casino industry in Tahoe.
In order to meet the demands of the patrons, Harrah’s & Harvey’s should have gone upscale, way upscale.
Instead, they just keep pushing the same ‘ole thing at Stateline.
I do give them credit for their summer concerts, but they’re going to need a lot more than just summer concerts to remain solvent & relevant.
Harrahs & Harvey’s need to create a destination environment to become profitable in Tahoe. Tahoe is a destination in and of itself, but Harrahs & Harvey’s do little to draw patrons to their properties. Create a high end destination, and the business will come in. High end establishments are the one element missing in Tahoe, and let’s face it, the high end of the population is doing just fine.
I think Caesars cares very little about these remote properties, at least that’s the way it comes off. These casinos are old and tired, serving a captive, probably stable customer base, definitely not growing.
That was the point I was making. I am not sure? The last time I stayed in SLT was in Harvey’s in 2000. It was actually very nice. also spent half a day in the spa @ Harrah’s Expensive but nice. So in 2000 Harrah’s upper floor rooms and the entire property were modern and VERY NICE.
the last Time I went in Harrahs was 2 years ago and it looked exactly the same as it did in 2000 Only 11 years older, as in no updates for 10 years? Is that true. Did they just stop improving , replacing modernizing a decade ago? That’s how it seems to me.
MTT, that was part of my point! Both Caesars properties here in town are long overdue for some TLC!
As someone who spent his formative years & thensome working for the namesake of the building (Bill Harrah) leaving after 10 years in Public Relations, the insight necessary is that when they’ve changed the name back & forth from Harrah’s to Promus back to Harrah’s Entertainment now to Caesar’s, it is because they are stuck on the idea that the ‘whales’ (used to be known simply as “high-rollers”) are the desired clientele – not the “nickel players” that were actually the bread & butter. . .
With so much competition in a dwindling market, the theory is that if we have fewer people, then they must each have more money, if we are to make a go of it. . .How’s that working out, folks (?). . .
They also have significant management contracts with the tribes they are so vehemently saying is responsible for their downfall, meaning that they are “playing both sides of the street” thinking they already have a stake in what the Native Americans are doing. . . not much incentive there, either. . .
Lastly, the latest step, of “acquiring” even more properties is also a downhill slope, as the O & M burden gets worse & worse for each and every property. . .Loveman thinks buying their way out of trouble will replace the old-fashioned model of “product” & marketing, but is, in my opinion, just piling more on top of what’s already declining. . .how’s that going to work (?)
Being owned by “investment banks” means that they are more interested in cash flow than actually knowing what product to offer, especially when their clientele pool is more strapped than ever – probably a product of the same investment banking ideas that caused 2008.
“We have money; let’s just buy casinos and make more of it”. . . with not much thought about the largest body of customers having less with which to patronize their “acquisitions”. . .
Working for the ‘namesake’ was a dream compared to the nightmare now being created. . . instead of simply buying their way into more “properties”, they actually should “double-back” and invest in the very infrastructure that is their foundation: Reno & Tahoe – then the other 48 properties can once again rely on the foundational two to understand why the name Harrah was synonymous with an exceptional product. . .not “run-of-the-mill”. . . that is, of course, if anyone there still knows. . .