The shape of things to come for Caesars
Caesars Growth Partners was never built for the long haul.
But even creators of the company that is 58 percent owned by Caesars Entertainment Corp. might have been hard-pressed to predict the business would have a lifespan of less than two years.
It’s abundantly clear Caesars Growth Partners is key to the planned bankruptcy restructuring of overly leveraged affiliate Caesars Entertainment Operating Co., which intends to shed almost $10 billion of the parent company’s industry-leading $22.8 billion debt through reorganization.
Thank you, Caesars Growth Partners. We hardly knew you.
The business — publicly traded as Caesars Acquisition Co. — will be merged into Caesars Entertainment once the the unit’s restructuring is final next year.
In lawsuits filed this year, Caesars creditors referred to Caesars Growth Partners as having “looted” the parent company of its best gaming and hotel properties by removing the pieces from the restructuring puzzle.
Fitch Ratings Service gaming analyst Alex Bumazhny, who has been the most skeptical critic of Caesars’ restructuring plans, said bringing Caesars Growth Partners back into the fold could quiet naysayers.
Bumazhny said last week the reorganization, which will cut Caesars Entertainment Operating Co.,’s $18.4 billion debt to $8.6 billion, would fail without the merger.
“The proposed transaction will partially reduce the overhang related to the improper asset transfer/sale claims made by certain CEOC creditors,” Bumazhny said in a statement. “Several hurdles remain before the plan can be implemented.”
Once Caesars Growth Partners returns to the fold, the company will be whole again. The deal will simplify Caesars’ corporate structure, with the merged company owning 10 Strip resorts; The Linq retail, entertainment and dining complex; and the High Roller observation wheel.
The $3.2 billion merged company would provide Caesars $1.7 billion in cash for the reorganization.
Caesars Growth Partners was set up as a development operation to own and operate Caesars Entertainment’s high-growth assets. Caesars Acquisition Co. owns the other 42 percent of the business. The CEO is Mitch Garber, who was CEO of the company’s interactive gaming and social casino entities.
Initially, Caesars Growth included Planet Hollywood, the Octavius Tower at Caesars Palace, the company’s majority stake in the Horseshoe Casino Baltimore, and Caesars Interactive Entertainment.
This year, Bally’s Las Vegas, The Linq Hotel (formerly The Quad), The Cromwell and Harrah’s New Orleans were acquired by the affiliate from the parent company for $2.2 billion.
In the third quarter, Caesars Growth Partners reported revenue of $485.8 million, a 49.1 percent increase. Net income grew 51.1 percent, to $70.7 million.
The interactive business, which includes the World Series of Poker, Caesars’ Internet gaming presence in Nevada and New Jersey, and social gaming, increased revenue almost 105 percent, to $161.6 million.
“We are confident that our strategy of developing new projects in key markets and investing capital to expand and enhance our existing casino and interactive portfolio will drive growth and solid operating results for Caesars Growth Partners,” Garber said in November.
The success of Caesars Growth Partners became a sticking point in months of heated negotiations between Caesars and its creditors that began in September.
In public statements made to Nevada gaming regulators this year, Caesars officials said the affiliate was set up for two purposes: to invest in Caesars properties and fix the company’s balance sheet. It still operated the casinos under its Total Rewards loyalty program.
Caesars originally had five years to merge Caesars Growth Partners back into the family — a time line now shortened to two years.
“If the merger closes, Caesars Entertainment will have greater access to assets at Caesars Growth Partners,” Bumazhny said.
Caesars also keeps Garber, also vice chairman of Caesars Entertainment, as a potential heir-apparent to Chairman and CEO Gary Loveman.
Loveman has a new contract that extends his tenure with the company until 2016.
Caesars, in a Securities and Exchange Commission filing Monday, said 39 percent of its creditors had agreed with the restructuring plan. The company needs to win over 60 percent by Jan. 9, although it has not said when or where it would file its bankruptcy plan.
Until the restructuring is resolved, investors can still benefit from Caesars Growth Partners.
Howard Stutz’s Inside Gaming column appears Wednesdays and Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Follow on Twitter: @howardstutz.
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