Caesars Entertainment Operating Company declares Chapter 11, will restructure
Caesars Entertainment Operating Company, Inc. ("CEOC"), a subsidiary of Caesars Entertainment Corporation ("Caesars Entertainment") (Nasdaq: CZR), and Caesars Entertainment have reached an agreement with CEOC's first lien noteholder steering committee regarding terms of a financial restructuring plan.
The proposed plan will significantly reduce long?term debt and annual interest payments, and result in a stronger balance sheet for CEOC.
The restructuring support agreement has been signed by all members of the first lien noteholder steering committee.
"The planned restructuring of CEOC will allow us to establish a strong and sustainable capital structure for CEOC and maximize value for our stakeholders," said Gary Loveman, Chairman of CEOC. "I want to thank this creditor group for its support of the restructuring. We believe the financial restructuring plan we are announcing today is in the best interests of all of CEOC's stakeholders. We look forward to continuing to welcome guests across our network throughout this
process. Business operations at all properties and the Total Rewards program will continue as usual throughout the balance sheet restructuring process."
To implement the balance sheet deleveraging, CEOC expects to voluntarily commence a reorganization under Chapter11 of the U.S. Bankruptcy Code in mid?January 2015. CEOC and its properties will continue to operate in the ordinary course throughout the restructuring process. Caesars Entertainment, Caesars Entertainment Resort Properties and Caesars Growth Partners, which are separate entities with independent debt capital structures, will not be part of the
Under the terms of the proposed financial restructuring, CEOC will convert its corporate structure by separating virtually all of its US?based gaming operating assets and real property assets into two companies, including an operating entity ("OpCo") and a newly formed, publicly traded real estate investment trust ("REIT") that will directly or indirectly own a newly formed property company ("PropCo").
The proposed transactions would reduce CEOC's debt by approximately $10 billion, providing for the exchange of approximately $18.4 billion of outstanding debt for $8.6 billion of new debt. Annual interest expense would be reduced by approximately 75%, from approximately $1.7 billion to approximately $450 million. PropCo would lease its real property assets to OpCo in exchange for annual lease payments of $635 million, with the lease payments guaranteed by
"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," Loveman said. "The formation of a publicly traded REIT would also allow CEOC to 2 significantly reduce its leverage by creating two better capitalized companies with vastly improved cash flow generation.
The transaction provides for the continued integration of CEOC's existing properties with Caesars Entertainment's multichannel
distribution network and industry?leading Total Rewards loyalty program. Combined, these actions will result in
a stronger, more competitive and sustainable CEOC and will better position Caesars Entertainment for future growth,
investment and success."
Terms & Capital Structure
The proposed restructuring plan has the support of all members of the first lien bondholder steering committee. CEOC is continuing to work to obtain additional support from its other creditors.
The specifics of the plan are consistent with the plan disclosed via 8?K on December 12, 2014, however, to further reduce the leverage of CEOC beyond the previously published plan, first lien note holders will have the right to backstop the issuance of $300 million convertible preferred equity securities to be issued by PropCo. First lien holders who agree to backstop the purchase will be paid a commitment fee. The preferred shares will be convertible into PropCo common
stock at plan value. First lien holders who sign the restructuring support by December 24, 2014 can join the backstop.
Under the plan, Caesars Entertainment will contribute up to $1.45 billion in cash to CEOC in support of the restructuring: $700 million to offer to purchase up to 100% of the equity in OpCo from creditors, $269 million to offer to purchase up to 15% of the equity in PropCo, $406 million to fund liquidity and cash recoveries to creditors and a guarantee of up to an additional $75 million of cash, which can be drawn by CEOC under certain circumstances. In addition, Caesars Entertainment has agreed to guarantee OpCo's monetary obligations under the lease to help facilitate the creation of the valuable REIT structure.
The restructuring is conditioned upon the release of all pending and potential litigation claims against Caesars Entertainment, Caesars Acquisition and related parties. The proposed restructuring plan is subject to approval by the bankruptcy court and the receipt of required gaming regulatory approvals. There are no assurances that the restructuring support agreement will become effective or that the proposed restructuring plan will be completed on the
terms contemplated or at all. Further details on the transaction will be included in Form 8?K filed with the SEC.