Exploring Caesars Entertainment’s New Capital Structure
Caesars Entertainment’s (CZR) operating unit, Caesars Entertainment Operating Company (or CEOC), will restructure as a separate operating company (or OpCo) and property company (or PropCo), with a real estate investment trust (or REIT) directly or indirectly owning and controlling the PropCo. The PropCo will own all of CEOC’s real property. A separate subsidiary of PropCo will own all of the assets of Caesars Palace Las Vegas (or CPLV).
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The OpCo will issue up to $1,188 million in principal amounts of first lien debt with a six-year term and interest at the London interbank offered rate (or LIBOR) plus 4.00% with a 1% LIBOR floor.
The OpCo will issue up to $547 million in principal amounts of second lien debt with a seven-year term and interest at 8.5%.
The PropCo will issue $2,392 million in principal amounts of first lien debt with a five-year term and interest at LIBOR plus 3.5% with a 1% LIBOR floor.
The PropCo will issue $1,425 million in principal amounts of second lien debt with a six-year term and interest at 8.0%.
CPLV will issue $2,600 million in debt. No less than $2,000 million of this debt will sell to third-party investors for cash proceeds. Any remaining debt up to $600 million will constitute CPLV mezzanine debt. The weighted average yield on the debt will be capped so that the annual debt service won’t exceed $130 million.
PropCo preferred equity
The PropCo may issue up to $300 million of preferred equity. The proceeds will first reduce the CPLV debt to meet certain conditions and reduce new second lien PropCo debt.
Recently, US casino companies like Boyd Gaming (BYD) and Pinnacle Entertainment (PNK) are considering spinning off their real property assets division into a REIT to unlock hidden value. A good way to get exposure to these companies is to invest in ETFs like VanEck Vectors Gaming (BJK) and PowerShares Dynamic Leisure and Entertainment (PEJ).