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Howard Stutz

Another group of Caesars Entertainment Corp. lenders, bondholders wants details of company affiliate

7 April 2014

A second group of Caesars Entertainment Corp. lenders and bondholders said it wants to unravel the deals used to create the company’s growth-oriented affiliate.

But in a filing Friday with the U.S. Securities and Exchange Commission, Caesars Entertainment said if the spin-offs of several Caesars Entertainment’s casinos and businesses into Caesars Growth Partners were undone, it “could trigger a default” of the affiliate’s debt raised to finance the transfers.

“These consequences could have a material adverse effect on Caesars Entertainment’s business, financial condition, results of operations and prospects,” the company said in the filing.

Caesars Entertainment owns 58 percent of Caesars Growth Partners, which was created to help repair the company’s balance sheet, which has a gaming industry-high $23 billion in long-term debt.

Caesars Growth Partners owns Planet Hollywood Resort, the under-construction Horseshoe Baltimore, a hotel tower at Caesars Palace and the company’s interactive gaming business, which includes its online gaming operations in Nevada and New Jersey and the World Series of Poker.

In February, Caesars Entertainment announced plans to sell Bally’s Las Vegas, The Quad, The Cromwell and Harrah’s New Orleans to Caesars Growth Partners in a $2.2 billion transaction. Caesars Entertainment said it would use proceeds from the sale to pay down debt.

Caesars Growth Partners is seeking loans of $1.3 billion to fund the transaction. Caesars Entertainment announced plans last week to sell 7 million additional shares of stock to raise almost $148 million.

Caesars announced the filing after the stock markets closed Friday. Shares of Caesars Entertainment closed at $17.75, down 78 cents or 4.21 percent on the Nasdaq Global Select. Caesars Growth Partners is traded on the Nasdaq as Caesars Acquisition Co., whose shares fell 84 cents or 6.06 percent to close at $13.01.

Caesars said it received a letter from a law firm “claiming to act on behalf of unnamed parties who assert” they are some of the company’s lenders and bondholders. The letter was not attached to the filing.

Caesars received a similar letter last month from attorneys representing another group of “unidentified note holders” who want to disband the transactions.

In Friday’s SEC filing, Caesars said the letter asserts Caesars Entertainment and Caesars Growth Partners “were insolvent when the transactions were approved” and that the deals breached the company’s fiduciary responsibility.

The letter claims the law firm represents bondholders who total more than $1.85 billion of the company’s debt. The letter also claimed holders of another $880 million of Caesars debt “endorse and support” the claims but are not part of the group.

The company said “there is no merit” to the allegations.

The law firm demands the transactions be reversed and requests a meeting with Caesars representatives.

Analysts have long said that Caesars’s debt load is unsustainable.

The company has said there would be no changes in the operations of the properties sold to Caesars Growth Partners. A shared-services joint venture will provide operating services to all of Caesars subsidiaries. The casinos will continue to operate under the company’s Total Rewards loyalty program.

Caesars’ private equity owners, TPG Capital and Apollo Management Group, each put $500 million into Caesars Growth Partners. High-profile investors, including hedge fund billionaire John Paulson, who owns 12 million shares, bought in. Soros Fund Management, the investment arm of billionaire George Soros, a high-profile supporter of liberal and progressive political causes, owns 6 million shares.