Caesars Entertainment Corp, the world's largest casino ompany, will buy back an affiliate it had spun off last year, in a high-stakes financial reshuffle weeks before its main operating unit files for bankruptcy.
The parent said on Monday the all-stock purchase of Caesars Acquisition Co will allow it to restructure debt without the need for significant outside financing.
Caesars Entertainment Operating Co (CEOC) said on Friday it would file for Chapter 11 bankruptcy by mid-January. The debt has weighed on the unit since a $30 billion leveraged buyout by Apollo Global Management and TPG Capital in 2008, and bankruptcy is expected to slash the debt to $8.6 billion from $18.4 billon.
"This kind of makes the whole thing work," said Alex Bumazhny, a Fitch Ratings analyst. He said Caesars Acquisition would provide the parent company cash for the operating unit's creditors, which could resolve disputes over various asset transfers.
The creditors allege the parent's shareholders, particularly Apollo and TPG, have seized the choicest casinos for their own benefit and left a hollowed shell to pay the debts.
Bumazhny said Monday's deal shows Caesar's Entertainment Corp and its private equity backers are trying to avoid a messy bankruptcy marked by litigation. "The sponsors are coming to a halfway point with creditors," he said.
Like many casino operators, growth is slowing for Caesars as gambling options in the United States have proliferated.
Under the deal, Caesars Entertainment will exchange 0.664 of its class A common stock for each outstanding share of Caesars Acquisition.
Based on Friday's closing price for Caesars Entertainment, the offer values Caesars Acquisition at $1.22 billion, or $8.96 per share.
On Nasdaq, Caesars Entertainment rose 15 percent at mid-afternoon, and Caesars Acquisition was up 5.8 percent. The companies share the same investor base: 90 percent of Caesars Entertainment shareholders own stock in Caesars Acquisition.
Caesars Entertainment Operating Co went public in 2012. Caesars Acquisition was spun off in 2013 to invest in Caesars Growth Partners LLC, which acquired from the operating unit casinos such as the Planet Hollywood casino-resort in Las Vegas and an investment in the Horseshoe Baltimore casino project.
The spin-off raised $1.17 billion but also rankled many creditors, who accused Caesars of trying to ringfence some of its best assets from a future bankruptcy.
The merged company will have a market value of $3.2 billion and Caesars Entertainment will own 62 percent, the company said.
Caesars Entertainment Chief Executive Gary Loveman will be the chairman and CEO of the merged company and oversee CEOC's restructuring.
Centerview Partners was the financial adviser to Caesars Entertainment and Reed Smith LLP was legal counsel. Moelis & Co advised Caesars Acquisition, while Skadden, Arps, Slate, Meagher & Flom was its legal counsel.
(Reporting by Tom Hals in Wilmington, Delaware and Shivam Srivastava and Rohit T.K. in Bangalore; Editing by Gopakumar Warrier, Saumyadeb Chakrabarty and Richard Chang)