Caesars expects $2.8 billion of liquidity at year end after debt sale

By Devika Patel

Knoxville, Tenn., Aug. 7 – Caesars Entertainment has strong liquidity following an $8 billion capital raise in June to finalize its merger, including $6.2 billion of junk bonds sold in three tranches.

The company expects to end the year with no outstanding balances on its $2.2 billion of revolvers and approximately $600 million of cash on hand, with plans to keep liquidity levels high due to the Covid-19 pandemic.

“We had a very active second quarter from a financial perspective, which was highlighted by our historic debt and equity executions that were successfully placed in late June, and yielded $8.8 billion of proceeds to finalize the merger financing,” chief financial officer Bret Yunker said on the company’s second quarter ended June 30 earnings conference call on Thursday.

“In conjunction with our capital markets execution, we also announced $700 million of incremental liquidity through transactions with Vici and our banks that we expect to be effective by the end of September.

“The driving logic behind our capital raises was to put an abundance of liquidity on the balance sheet, that will allow us to navigate through various operating scenarios that we understand will evolve alongside the ongoing health crisis,” Yunker said.

The company now has access to plenty of liquidity.

“We have a strong liquidity position which will allow us to weather short-term weakness due to Covid-19,” Yunker stated in a press release.

“For new Caesars Entertainment, Inc. we successfully executed an $8 billion debt raise on June 19, which further enhances our pro forma liquidity," Yunker stated.

“Pro forma for the full redemption of the Caesars convertible notes and closing of the aforementioned transactions will have access to $2.2 billion of undrawn revolving credit facilities, just under $1 billion of operating cash and approximately $600 million of excess cash on the balance sheet,” Yunker said on the call.

“Based on current operating trends, and the execution of incremental cost savings, we expect to end the year with the bulk of that excess cash on hand and zero balance on the revolvers,” Yunker said.

The majority of the company’s properties remained closed in April and May, but have since begun to reopen.

“Our second quarter operating trends were negatively impacted as the majority of our properties remained closed during April and May 2020,” chief executive officer Thomas R. Reeg stated in a press release.

“Our properties began to reopen in late May and early June.

“All of the combined new Caesars Entertainment, Inc. regional properties are now reopened and we are encouraged by operating trends,” Reeg stated.

As of June 30, legacy Eldorado Resorts, Inc. had $2.7 billion of debt outstanding. Total cash and cash equivalents were $950.5 million, excluding restricted cash, as of June 30.

On June 19, Colt Merger Sub, Inc. priced $6.2 billion of junk in three tranches backing the acquisition of Caesars Entertainment Corp. by Eldorado Resorts, Inc.

Bookrunners were Credit Suisse Securities (USA) LLC (lead on Caesars Entertainment), J.P. Morgan Securities LLC (lead on Eldorado Resorts), Macquarie, BofA Securities Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, SunTrust Robinson Humphrey Inc., U.S. Bancorp Investments Inc. and Citizens Capital Markets Inc.

The Caesars Entertainment portion of the deal came as a downsized $1 billion amount of five-year secured notes (B1/B+), which priced at par to yield 5¾%. The tranche was reduced from $1.05 billion. The yield printed at the tight end of the 5¾% to 6% yield talk. Initial guidance was in the high 5% to 6% area.

The Eldorado portion of the bond financing upsized to $5.2 billion from $4.995 billion.

It featured an upsized $3.4 billion tranche of five-year secured notes (B1/B) that priced at par to yield 6¼%. The tranche was upsized from $3.08 billion. The yield printed at the tight end of the 6¼% to 6½% yield talk, which came in line with early guidance in the low-to-mid 6% area.

The Eldorado portion also included a downsized $1.8 billion tranche of seven-year unsecured notes (Caa1/CCC+), which priced at par to yield 8 1/8%, at the tight end of the revised 8 1/8% to 8¼% yield talk. Earlier official talk was 8¼% to 8½%, tight to early guidance in the mid-to-high 8% area. The unsecured tranche was downsized from $1.875 billion.

The overall bond portion of the financing grew to $6.2 billion from $6.005 billion.

The secured tranches were heard to play to $8.1 billion of demand across 211 accounts. The unsecured tranche played to $6.4 billion of demand across 195 accounts.

On July 21, Caesars Holdings, Inc. announced a fundamental change offer to purchase any and all of its outstanding 5% convertible senior notes due 2024.

The offer is in connection with the company’s acquisition by Eldorado Resorts, Inc., which took effect on July 20.

Holders have the right to require Caesars to purchase for cash all of their notes, or any portion equal to $100 or an integral multiple of $1.00 in excess thereof, on Aug. 19.

Caesars will purchase the notes at par plus accrued interest to but excluding the purchase date, or $1.019167 per $1.00 principal amount.

Holders may tender notes prior to 5 p.m. ET on Aug. 18 and may withdraw tenders at any time prior to then, but not after.

Make-whole conversion right

Following the merger, each holder’s right to convert each $1.00 principal amount of notes into shares of Caesars common stock has been changed into a right to convert the notes into the kind and amount of cash, securities or other property that a holder of Caesars common stock would have been entitled to receive upon consummation of the merger, based on the weighted average of the types and amounts of consideration received by holders of Caesars common stock that affirmatively made an election as to the form of consideration to be received under the merger.

As a result of elections affirmatively made by the holders of Caesars common stock in connection with the merger, the weighted average consideration received by those holders attributable to one share of Caesars common stock consists of $8.39 in cash and 0.099924691 shares of parent common stock, known as a unit of reference property.

Because each of the completion of the merger and the delisting of Caesars common stock from Nasdaq also constitutes a make-whole fundamental change, if a holder surrenders the notes for conversion at any time from and including July 20 until Aug. 17, the make-whole conversion period, the conversion rate of the notes will be 0.140356953 units of reference property, corresponding to 0.014025125 shares of parent common stock and $1.177595 in cash, per $1.00 principal amount of notes.

The make-whole conversion rate is based on a make-whole applicable increase of 0.001358628 based on a make-whole effective date of July 20 and an applicable price of $12.31.

If a holder does not elect to convert its notes in connection with the make-whole fundamental change during the make-whole conversion period, the conversion rate of the notes will be 0.138998325 units of reference property, corresponding to 0.013889365 shares of parent common stock and $1.166196 in cash, per $1.00 principal amount of notes.

The conversion rate of the notes will revert from the make-whole conversion rate to the conversion rate after the make-whole conversion period ends.

The paying agent for the fundamental change offer is Delaware Trust Co. The conversion agent is Computershare, Inc.

Caesars is a Las Vegas-based gaming and entertainment company. Eldorado is a Reno, Nev.-based gaming company. Upon completion of the transaction, the combined company will retain the Caesars name and be based in Reno.

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