Casino company Caesars Entertainment, which is owned by Apollo Global Management and TPG Capital, has announced a strategic restructuring, which will see the buyout firms invest in a new growth vehicle.
Caesars will form a new entity, Caesars Growth Partners, and will be provided with capital to allow Caesars to continue to fund growth opportunities in a “less levered and more flexible vehicle” than its existing operating subsidiaries.
Apollo and TPG Capital have said they will each invest $250m in the new venture, which could receive approximately $1.2bn if all subscription rights are exercised in full.
Caesars, which has close to $24bn of debt, said the move was intended to improve the company’s capital structure and provide support for new projects.
The transaction will result in a cash infusion into Caesars Entertainment from the sale of certain assets to the Growth Partners unit, while also freeing it from funding future equity contributions required for projects under development, the company said.
Caesars is expected to own at least 57 per cent of Growth Partners, and as much as 77 per cent, depending on the amount of proceeds raised through its sale of shares.
Apollo and TPG took the company private in 2008 for $30.7bn, paying $90 per share. The LBO reportedly doubled Harrah’s debt, which stood at $19.8bn as of the six months ended June 30 2010.
“The transaction is an important step in our ongoing efforts to improve the company’s balance sheet and position ourselves to make strategic investments,” said Gary W Loveman, chairman, President and CEO of Caesars Entertainment. “Caesars Growth Partners and its simple and flexible capital structure provide us with a vehicle to pursue growth opportunities while retaining a significant portion of the financial upside associated with these assets and projects.
“The transaction enables us to raise equity capital at attractive valuations without diluting stockholders of Caesars and provides Caesars additional cash liquidity without incurring new debt. I am pleased that our sponsors, TPG and Apollo, have chosen to express their confidence in our current position and future opportunities through their new investment.”
The proceeds will be used to acquire the Planet Hollywood Resort & Casino in Las Vegas from Caesars Entertainment, Caesars’ joint venture interests in a casino under development in Baltimore and a financial stake in the management fee stream for both of those properties.
Caesars Entertainment has floated a number of times in the past under different owners. In November 2010 it planned to offer 31.25 million shares at $15-$17 per share, which could have raised between $468.7m and $531.2m. However, plans were scrapped due to investor disquietude over the group’s debt burden.
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