Caesars’ bank lenders agree restructuring but no deal with bondholders

New York, Dec. 12 – Caesars Entertainment Corp.’s first-lien bank lenders said they believe they have reached an agreement in principle on restructuring the company’s debt through a Chapter 11 filing but that the company has not been able to fix acceptable terms with noteholders.

An informal committee of the first-lien bank lenders announced the oral agreement with Caesars after the non-disclosure agreement expired on Dec. 10. Caesars confirmed the oral agreement in an 8-K filing with the Securities and Exchange Commission.

But the bank lenders noted that the agreement was contingent on the company negotiating terms with certain holders of Caesars Entertainment Operating Co., Inc.’s 11¼% senior secured notes due 2017, 8½% senior secured notes due 2020 and 9% senior secured notes due 2020.

“The first-lien bank lenders understand that, at the time of this press release, the company has not reached an agreement with the first-lien bondholders on the terms of a restructuring that are acceptable to the first-lien bank lenders, nor has the company negotiated the details of the definitive documentation relating to such restructuring or resolved all of the substantive issues with the first-lien bank lenders,” the informal committee said in a news release.

In a separate announcement, a first-lien bondholder noted that a confidentiality agreement had expired and that it was therefore able to disclose information received from Caesars. The announcement was made through the bondholder’s attorney, Kramer Levin Naftalis & Frankel LLP, and the name of the bondholder was not disclosed.

Caesars said that the non-disclosure agreements with other first-lien bondholders have been extended, adding that it continues to discuss terms of a restructuring.

Agreement terms

The bank lenders’ informal committee said the oral agreement on a restructuring included the following main terms:

• Caesars Entertainment Operating would be restructured as a real estate investment trust with an operating company and a property company. A subsidiary of the property company would own all of the assets of Caesars Palace Las Vegas;

• The operating company would lease all the properties owned directly or indirectly by the property company under two separate leases, one for Caesars Palace Las Vegas, the other for the remaining properties. Rental payments would be $475 million for the non-Caesars Palace Las Vegas properties and $160 million for the Caesars Palace Las Vegas property;

• The property company would issue $2.4 billion of first-lien debt with an interest rate of Libor plus 350 basis points with a 1% Libor floor and $1.4 billion of second-lien debt with a 7% interest rate;

• Caesars Palace Las Vegas would issue $2.6 billion of debt, including mezzanine debt, with at least $2 billion being issued with a blended interest rate of 5% or below and sold to third-party investors for cash. Up to $600 million of Caesars Palace Las Vegas debt that was not able to be sold to third-party investors would be issued to first-lien creditors as Caesars Palace Las Vegas mezzanine debt and would have an interest rate ranging from 8% if first-lien creditors received $600 million of mezzanine debt to 13% if first-lien creditors received $100 million of mezzanine debt;

• The operating company would issue $1.2 billion of first-lien debt with an interest rate of Libor plus 400 bps to 450 bps with a 1% Libor floor, the rate depending on the amount of excess cash used to decrease the principal of the operating company second-lien debt, and $550 million or less – if the excess cash is used to decrease the principal of the operating company second-lien debt exceeded $350 million – of second-lien debt with an 8.5% interest rate. The operating company would use its commercially reasonable best efforts to syndicate the first-lien debt. All excess cash during the restructuring process would be used to decrease the principal amount of the operating company second-lien debt. If there was not at least $350 million of excess cash, then Caesars Entertainment Corp. would be required to make up the shortfall;

• Caesars Entertainment Corp. would not guarantee any of this new debt;

• Holders of Caesars Entertainment Operating senior secured credit facilities would receive a 100% recovery of principal comprised of $705 million of cash, $883 million of first-lien operating company debt and/or cash from the first-lien debt syndication, $406 million of second-lien operating company debt and/or additional cash, $1,961,000,000 of first-lien property company debt, not less than $1.2 billion of cash from Caesars Palace Las Vegas debt sold to third-party investors and $250 million of Caesars Palace Las Vegas mezzanine debt and/or additional cash;

• If the holders of Caesars Entertainment Operating’s senior secured credit facilities receive any Caesars Palace Las Vegas mezzanine debt, they would be permitted to move up to $100 million of the Caesars Palace Las Vegas mezzanine debt to any other debt or equity investment at the operating or property companies;

• Holders of Caesars Entertainment Operating’s first-lien bond debt would receive a 93.8% recovery of principal, comprised of $382 million of cash, $306 million of first-lien operating company debt and/or cash from the operating company first-lien debt syndication, $141 million of second-lien operating company debt and/or additional cash, $431 million of first-lien property company debt, $1,425,000,000 of second-lien property company debt, not less than $800 million of cash from Caesars Palace Las Vegas debt sold to third-party investors and $350 million of Caesars Palace Las Vegas mezzanine debt and/or additional cash, 70% directly or indirectly of the property company equity, or cash, and 100% of the operating company equity or cash, in which case Caesars Entertainment Corp. would own 100% of the equity of the operating company;

• Holders of Caesars Entertainment Operating’s second-lien and unsecured bond debt would receive an amount of equity directly or indirectly in the property or operating companies equal to the value of the unencumbered assets. If they vote as a class in favor of the restructuring they would receive additional equity and the right to purchase property company equity from the beneficial holders of Caesars Entertainment Operating’s first-lien bond debt at plan value;

• Holders of Caesars Entertainment Operating’s first-lien bond debt would be entitled to put all of the operating company equity for $700 million and 14.8% of the property company equity for $300 million to Caesars Entertainment Corp. at their option. Caesars Entertainment Corp. would also contribute $100 million to Caesars Entertainment Operating as part of the restructuring;

• Caesars Entertainment Corp. contemplates raising capital from third parties to finance its funding obligations by issuing $150 million in convertible debt with a variable strike price of no more than $14.00 per share;

• In Caesars Entertainment Operating’s Chapter 11 proceeding, the first-lien bank lenders would receive adequate protection payments of Libor plus 150 bps, subject to a most favored nation provision in the event higher adequate protection payments are made, for Caesars Entertainment Operating’s use of cash during the case.

Caesars is a Las Vegas-based casino-entertainment company.

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