Buyout groups scramble to keep Caesars afloat

Another day, another refinancing at private equity-owned Caesars Entertainment. In this case the Las Vegas-based casino operator said this week it was seeking to raise almost $5bn in bonds and loans to refinance its commercial mortgage-backed securities and a chunk of junior debt.

Apollo Global Management and TPG bought Caesars, at the time known as Harrah’s, in early 2008, paying $30bn – of which $25bn was debt.

Since then, the two buyout groups have struggled to keep the casino operator afloat in the face of a sluggish economy, which caused revenue to drop by a fifth from the peak, and under the weight of a crushing debt load.

At the end of the second quarter, TPG valued its equity at 30 cents on the dollar, according to letters to its investors. The company, in which Apollo and TPG together own a stake of about 70 per cent, has about $23bn of debt. Shares in the company have more than trebled since the start of the year and at $23.71, they are well above the $9 a share level at which they relisted last year.

But the fact that their investment in the company may be worth anything at all is tribute to the financial engineering experience of Apollo, which has a history of bringing moribund companies back from the brink of default and bankruptcy.

Apollo was also able to secure concessions from its debt holders, changing the corporate structure into an operating company and a property company, creating another entity in the process that it plans to list this quarter.

Caesars has been a source of profits for many distressed debt funds that have traded in and out of the debt over the years, riding the rise in value of the senior debt, which traded at 96 cents on the dollar shortly before the latest round of refinancing leaked into the market.

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