Caesars, subsidiaries ink several agreements upon emergence and merger

By Caroline Salls

Pittsburgh, Oct. 13 – Caesars Entertainment Corp. and several subsidiaries, including Caesars Entertainment Operating Co., Inc. (CEOC) entered into several agreements in connection with CEOC’s emergence from Chapter 11 bankruptcy and the completion of Caesars’ merger with Caesars Acquisition Co. (CAC), according to an 8-K filed Friday with the Securities and Exchange Commission.

Caesars said CEOC LLC, CEOC and Desert Palace LLC leased the land and improvements constituting the Caesars Palace Las Vegas property from CPLV Property Owner LLC and leased some U.S. properties from affiliates of the landlord.

In addition, Des Plaines Development LP leased the land and improvements constituting the Harrah’s Joliet casino in Joliet, Ill., from Harrah’s Joliet Landco LLC.

Lease agreement terms

Subject to specified exceptions, the payment of all monetary obligations of the applicable operating company tenant under each lease agreement will be guaranteed by Caesars. Each lease agreement has a 15-year initial term and four renewal terms of five years.

The tenant is responsible for all operating costs associated with the respective facilities.

Each lease agreement provides for fixed rent during an initial term, then rent consisting of both base rent and variable percentage rent elements. Specifically, the Caesars Palace lease provides for annual fixed rent of $165 million for the first seven lease years, subject to escalation beginning in the second lease year. Beginning in the eighth lease year, the base rent will initially equal 80% of the preceding year’s rent.

The non-Caesars Palace lease and the Joliet lease provide for annual fixed rent of $473 million for the first seven lease years, subject to escalation beginning in the sixth lease year. Beginning in the eighth lease year, base rent will begin to be due.

Concurrently with the execution of the Caesars Palace lease, Desert Palace was granted a royalty-free, perpetual license to use the “Caesars Palace” and “Caesars Palace Las Vegas” brands and marks by Caesars License Co., LLC (CLC).

Also, some golf course properties were transferred to certain affiliates of the property company landlord, and the golf course owners entered into a golf course use agreement under which the users will make an annual $10 million payment, subject to escalation, as well as an annual $3 million user fee.

Management agreements

Under management and lease support agreements reached with Caesars, the parent company will not sell its assets unless it receives consideration equal to at least fair market value. In the event of sales to affiliates, the sale will be subject to a right of first refusal in favor of the property company landlord, the approval of a majority of Caesars’s independent directors and receipt of a fairness opinion.

For a period of six years after Oct. 6, the management agreements will also restrict Caesars’ ability to pay dividends, purchase equity interests or engage in similar transactions, with specified exceptions.

Right-of-first-refusal deal

On the plan effective date, Caesars entered a right-of-first-refusal agreement with VICI Properties LP for some non-Las Vegas domestic real estate that Caesars or its affiliates may have the opportunity to acquire or develop.

Caesars and CEOC LLC also entered into a tax matters agreement with VICI Properties, VICI Partnership and CPLV Property Owner, addressing matters related to the payment of taxes and entitlement to tax refunds and allocating liabilities.

Convertible notes issued

Caesars said it issued $1,119,060,000 principal amount of 5% convertible notes due 2024 to be distributed under CEOC’s Chapter 11 plan to holders of non-first-lien claims.

The notes are convertible at the option of holders into shares of Caesars common stock that is initially equal to 0.138998325 shares per $1.00 of notes.

The convertible notes are subject to conversion at the option of Caesars following the third anniversary of the issuance if the last reported sale price of the common stock equals or exceeds 140% of the conversion in effect on each of at least 20 trading days during any 30 consecutive trading day period.

Contribution agreement

Caesars and Hamlet Holdings LLC, which is comprised of three individuals affiliated with affiliates of Apollo Global Management, LLC and two individuals affiliated with affiliates of TPG Global, LLC, entered into a contribution agreement under which Hamlet Holdings agreed to contribute, assign, transfer and deliver to Caesars 87,605,299 shares of Caesars common stock.

Caesars agreed to cancel and retire those shares within five business days of receipt.

Under the merger agreement, Caesars assumed the CAC 2014 Performance Incentive Plan, and all CAC stock options and awards under the plan.

Caesars is a Las Vegas-based casino-entertainment company that emerged from bankruptcy on Oct. 6.

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