3 December 2014
By Howard Stutz
LAS VEGAS — “O mighty Caesar! dost thou lie so low? / Are all thy conquests, glories, triumphs, spoils, / Shrunk to this little measure?”
These words were written in 1599 by William Shakespeare for his tragedy “Julius Caesar.”
But they actually have meaning today when it comes to the tragedy of Caesars Entertainment Corporation.
The nation’s largest casino operator — with almost 40 properties in 14 U.S. states and the Canadian province of Ontario — is under attack from all fronts as it struggles to restructure its gaming industry-high debt load of $22.8 billion.
Caesars owns 10 hotel-casinos on or near the Strip, including its flagship Caesars Palace and Harrah’s Las Vegas Casino & Hotel — which signifies the company’s predecessor name.
The debt has been on Caesars’ books since 2008 when the company was taken private in a $30 billion leveraged buyout by TPG Capital and Apollo Global Management. The company’s chief operating division, Caesars Entertainment Operation Co., controls about 80 percent of the overall debt and is running out of cash to meet those obligations.
Caesars and Chairman Gary Loveman face the knives of creditors and bondholders dressed as Marcus Brutus.
Debt reduction talks have been underway since September between Caesars executives and their financial advisers with bondholders and banks. Sources said a framework to a restructuring agreement has been reached, which includes a prepackaged bankruptcy covering CEOC and moving the casinos controlled by CEOC into a real estate investment trust.
An actual deal is still far from certain.
Meanwhile, Caesars has received default notices from second-tier bondholders since this summer, actions that the company has termed “meritless.”
Before Thanksgiving, a creditor group led by UMB Bank — which is owed $1.25 billion — filed a lawsuit in Delaware, demanding that Caesars corporate executives be removed from control of the company.
The language in the lawsuit was vitriolic. Creditors claimed Caesars directors — led by TPG’s David Bonderman — “thoroughly ransacked” the company, keeping the best properties within Caesars while leaving CEOC with all the liabilities. The lawsuit asks the court to appoint a receiver to run CEOC.
Caesars financial spokesman Stephen Cohen of New York-based Teneo Holdings said the claims were “baseless.”
There is also a back story worthy of Shakespeare.
The New York Post first reported that Elliot Management Corp., a hedge fund controlled by activist investor Paul Singer, is behind the lawsuit. In August, Caesars filed its own lawsuit in New York against a group of its institutional investors — including Elliot Management — claiming it was trying to block the restructuring efforts. The case is still pending.
Two first-lien creditors — hedge funds Perry Corp. and Silver Point Capital — have bailed on the debt restructuring talks. But Elliot Management is still a party to the discussions.
The lawsuit appears to be about gamesmanship.
“This filing is an attempt to derail constructive talks the company is having with creditors concerning a restructuring of CEOC,” Cohen said in an email. “We will defend ourselves vigorously.”
Singer and Elliot Management aren’t newcomers to the gaming industry.
In March the hedge fund acquired a 5 percent stake in Boyd Gaming Corp. Analysts said the activist firm favors buying into undervalued companies and offering operating advice. It was widely speculated Singer wanted Boyd to spin off its casinos into a REIT. Last month, Boyd said it had spent $3 million to explore the REIT concept.
Caesars’ prepackaged bankruptcy and REIT agreement will reportedly be filed by the middle of January.
The Post said Singer wants to send Caesars into bankruptcy sooner rather than later to better protect his investment.
Analysts have said they like the REIT idea, which would split CEOC into two companies, one owning the real estate and the casinos and a second business that operates the properties. However, the company said in a Securities and Exchange Commission filing the REIT concept had been “superseded” by other proposals.
The current plan offers the first- lien debt holders nearly 100 percent recovery. Second-lien bondholders will get an undisclosed amount of equity in the new company.
Or nothing at all.
Analysts don’t believe a prepackaged bankruptcy is possible for CEOC, which operates many of the company’s regional properties, as well as Caesars Palace and Caesars Atlantic City. Fitch Ratings Service gaming analyst Michael Paladino said last month the complexity of the company’s capital structure would signal a lengthy bankruptcy process.
“Getting a quick resolution … remains a challenging proposition,” Paladino said.
It would more be relevant in this tragedy if a bankruptcy filing were to take place on the Ides of March.
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