It’s a wrap. Caesars’ tortuous bankruptcy, described by one of the casino group’s own lawyers as the “largest and most complex bankruptcy in a generation,” is over and, frankly, few could have imagined it would all end so well.
Over the past two and a half years, we’ve had multi-billion-dollar lawsuits, bitter recriminations, stalling tactics and legal posturing. We’ve had allegations of fraud and asset stripping. A former-Watergate prosecutor showed up at one point, whose task it was to follow the paper trail through a tangled web of Caesars subsidiaries by examining 80 million pages of documents.
Meanwhile, a mediator resigned in disgust and a straight-talking judge demanded that some of the world’s richest and most powerful private equity people must “pony up the paper” and air their bank statements in public.
In frustration, the judge even suggested at point that “liquidation would be a hoot.”
But ultimately, we had a dramatic climb down from Caesars’ private equity controlling owners, Apollo Global Management and TPG Capital, who agreed to sweeten the pot for Caesars debtors by ceding control of the reformed company on the condition it be released from allegations of asset stripping and possibly billions of dollars in legal claims.
From the wreckage of all this emerges a cleaner, leaner Caesars, with a completely new corporate structure and a reshuffled boardroom. It’s sheared of tangled subsidiaries and it now even has market cap not far from its pre-recession value.
As of Sunday, the group’s distressed main operating unit, CEOC, has been spun off into a real-estate investment trust to control the group’s properties, while parent company Caesars Entertainment (CEC) will merge with subsidiary, Caesars Acquisition Co (CACQ.O).
$20 Billion Market Cap
The restructuring will chop $10 billion off its $18 billion debt, thanks to creditors taking increased equity in the restructured company, as well a reluctant $6 billion cash injection into the restructuring from Apollo and TPG.
“The conclusion of CEOC’s restructuring leaves Caesars Entertainment with an expected enterprise value of approximately $20 billion based on yesterday’s closing prices,” said Caesars CEO Mark Frissora. “With reduced leverage, increased free cash flow and the new REIT structure, we are positioned with a solid foundation to pursue a diversified growth strategy.”
Caesars acquired its industry high-debt when it was bought out in a highly leveraged takeover by Apollo and TPG for $31 billion in 2008, at the onset of the financial crisis. It was subsequently saddled with $2 billion in interest payments every year and has failed to be profitable ever since.
“The newly restructured Caesars Entertainment is positioned to further invest in its growth strategy and realize the benefits of a simpler and less leveraged capital structure,” the company said.