The sale of Bally's, The Cromwell, The Quad and Harrah's New Orleans to Caesars Growth Partners preserves the network value of the four properties while enhancing liquidity at CEOC.

LAS VEGAS—Caesars Entertainment Corp. has entered into a definitive agreement to sell Bally’s Las Vegas, the Cromwell (formerly Bill’s Gamblin’ Hall & Saloon), the Quad and Harrah’s New Orleans to Caesars Growth Partners LLC. The purchase price was $2.2 billion, including assumed debt of $185 million and committed project capital expenditures of $223 million, resulting in anticipated cash proceeds of $1.8 billion, says the company.

“Since being taken private near the beginning of the global financial crisis, we have faced an incredibly challenging business environment and a highly leveraged capital structure,” says Gary Loveman, chairman and chief executive officer of Caesars Entertainment. “Despite these obstacles, we have invested significantly in the growth of our network and the enhancement of our assets while concurrently deploying a wide array of financial and operational tools to manage the company’s capital structure and create value.”

He adds that “Across our network, we have recently opened or will open promising new projects and amenities, such as The LINQ and High Roller and upgrades throughout Las Vegas. We also share in the economic benefits associated with Caesars Growth Partners, including considerable growth last year at Caesars Interactive Entertainment Inc., through social and mobile games and the launch of real-money online gaming in Nevada and New Jersey.”

The transaction is expected to close in the second quarter of 2014, subject to certain closing conditions, including the receipt of required regulatory approvals. These actions are part of ongoing efforts to address Caesars Entertainment Operating Co. Inc.’s overall capital structure and position that subsidiary of Caesars Entertainment to enhance equity value, says the company. 

Caesars Entertainment and its affiliated companies will manage the purchased properties, allowing continued integration with the Total Rewards network and related synergies. The sale of Bally’s, The Cromwell, The Quad and Harrah’s New Orleans to Caesars Growth Partners preserves the network value of the four properties while enhancing liquidity at CEOC.

The sale also includes a financial stake in the associated management fee stream. This asset sale will also facilitate new investment in these properties, says the company, some of which require considerable capital expenditures to realize their full potential as part of Caesars’ network at the center of the Las Vegas Strip.

The asset sale was negotiated and unanimously recommended by special committees comprised of independent members of the boards of directors of Caesars Entertainment Corp. and Caesars Acquisition Co., the managing member of Caesars Growth Partners.

Centerview Partners and Duff & Phelps served as financial advisors to the special committee of Caesars Entertainment Corp. and Reed Smith LLP served as the committee’s legal counsel. With this transaction, Caesars Acquisition Co. has announced a $223 million renovation of the Quad Resort & Casino.

“Today’s asset sales mark an important step in our ongoing efforts to repair CEOC’s balance sheet,” Loveman says. “Caesars Entertainment and Caesars Acquisition Co. have a combined equity market capitalization of more than $5 billion. To build equity value, we have employed a full complement of operating and financial tools. The toolbox, which includes cost management, working capital management, operational improvements, acquisitions, asset sales, credit agreement amendments, innovative operating strategies, exchange offers and equity raises, has helped to create two stable entities. The company expects to deploy a similar array of tools to improve CEOC’s financial position and build equity value.”

Pro forma for this transaction, CEOC will have in excess of $3.2 billion in cash as of December 31, 2013. CEOC will also be relieved of potential capital expenditure requirements for the purchased properties. CEOC intends to use a portion of the proceeds from the asset sales to reduce bank debt.

In addition to financial and capital structure initiatives, Caesars is focused on generating additional operational efficiency in 2014. In 2013, the company implemented a program to both improve its working capital and excess cash by $500 million and to generate $500 million of operating and EBITDA improvements.

Through this plan, the company has made substantial progress towards that goal and expects the program to benefit CEOC this year. The company plans to provide updates on additional achievements during 2014. The recent ratification of a new long-term labor agreement in Nevada presents Caesars with a stable platform for growth opportunities, particularly in the hospitality and entertainment segments.

Separately, Caesars Entertainment revealed preliminary results for the fourth quarter of 2013 that include consolidated results for Caesars Growth Partners. The company expects to report its financial results for the quarter and full-year ended Dec. 31, 2013 in March.

Commenting on the results, Loveman says that “2013 was a year of considerable progress and activity for Caesars. We significantly invested in growth projects and undertook a number of actions designed to enhance the company’s capital structure and create value. For the fourth quarter, performance in some of our regional areas, particularly Atlantic City, was disappointing. We are, however, encouraged by volume and visitation trends in Las Vegas. We are excited about our prospects there fueled by organic growth as well as our hospitality investments.”

While Caesars Entertainment has not yet completed its financial statements for the quarter, the company currently expects consolidated net revenue to be in the range of approximately $2,050 million to $2,110 million and that its Adjusted EBITDA will be in the range of approximately $395 million to $415 million for the quarter ended December 31, 2013.

Estimated net loss attributable to Caesars Entertainment for the quarter ended December 31, 2013 is expected to range between $1,700 million and $1,820 million, compared to net loss attributable to Caesars Entertainment of $480.3 million for the quarter ended December 31, 2012.

Consolidated net revenues for the fourth quarter of 2013 are expected to increase slightly as compared to the prior year primarily due to the combination of increases in pass-through reimbursable management costs, growth at Caesars Interactive Entertainment and declines in promotional allowance, offset by lower casino revenue. The decline in casino revenue is primarily attributable to continued weakness in certain domestic markets outside of Nevada and the impact on revenues resulting from the partial sale of our Conrad Punta del Este, Uruguay casino in the second quarter 2013.

Adjusted EBITDA is expected to be down slightly as compared to the prior year due to the decline in casino revenues. Net loss attributable to Caesars Entertainment for the fourth quarter of 2013 as compared to 2012 is expected to increase as a result of significantly larger impairments of tangible and intangible assets in 2013 as compared to the prior year quarter, as well as the income impact of lower casino revenues, and increased interest expense, partially offset by lower depreciation due to certain assets becoming fully depreciated early in 2013.