LAS VEGAS—Caesars Entertainment Corp. and affiliate Caesars Acquisition Co. said Monday they had agreed to merge into a gaming resort company with a market capitalization of $3.2 billion. The all-stock merger plan bolsters the restructuring of Caesars Entertainment Operating Co., a Caesars Entertainment subsidiary, and CEOC's planned conversion into a REIT.
Both moves are seen as steps toward Caesars being able to cut its debt load by more than half. The company, which has posted losses every year since 2009, currently is carrying $18.4 billion of debt, mainly on the CEOC side; a restructuring would replace that amount with $8.6 billion worth of new debt, Caesars said Friday.
The Caesars Entertainment/Caesars Acquisition merger would position the combined company to backstop the CEOC restructuring without the need to incur any significant outside financing. It would also enable the company, to be known as Caesars Entertainment, to guarantee the rent payments that CEOC's OpCo unit makes to its PropCo REIT.
In pursuit of that REIT conversion, CEOC will file for a voluntary Chapter 11 reorganization in mid-January. The bankruptcy filing does not involve Caesars Entertainment, Caesars Acquisition or Caesars Growth Partners.
“The highly efficient REIT structure would enable CEOC to maximize its value and provide the most financial recovery to each of CEOC's creditor groups,” says Gary Loveman, chairman and CEO of Caesars Entertainment and chairman of CEOC. “The formation of a publicly traded REIT would also allow CEOC to significantly reduce its leverage by creating two better capitalized companies with vastly improved cash flow generation.”
Loveman's contract as chairman and CEO of the combined Caesars Entertainment has been extended to the end of 2016. He will also oversee the restructuring of CEOC. Mitch Garber, currently CEO of Caesars Acquisition, will become CEO of Caesars Interactive Entertainment and vice chairman of Caesars Entertainment. Apollo Global Management and TPG Capital, which took Caesars Entertainment private in a $30.7-billion 2008 leveraged buyout, will continue to control the company.
The combined Caesars Entertainment will operate Caesars Palace and own 11 properties in Las Vegas, including nine casino resorts and the LINQ promenade and High Roller observation wheel. The merged company will also own CIE, Harrah's New Orleans, Harrah's Atlantic City, Harrah's Laughlin and Caesars Acquisition's current equity interest in Horseshoe Baltimore.
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