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Eldorado and Caesars deal in jeopardy

Sat, Mar 14, 4:19pm by William Brown

Eldorado Resorts chief executive officer Tom Reeg has called the acquisition of Caesars Entertainment a “home run for all of our stakeholders.”

However, that home run may turn into a strikeout if the market doesn’t recover quickly.

Calvin Ayre reports that financial institutions have pledged to put more than $7 billion in loans and could find selling the idea to investors difficult, thanks to the coronavirus and what it has done to global financial markets.

Bloomberg points out that Credit Suisse Group, JP Morgan Chase & Co and Macquarie Group have all been onboard the acquisition, agreeing in June of last year to provide the necessary financing.

As the deal appear to be close to being finalised, with only a couple more regulatory approvals needed, the bank only have a little time left to convince bond and loan buyers that the “highly leveraged” deal makes sense.

Because of the coronavirus, stock trading was temporarily halted this week in order to prevent a further slide into a full-blown recession.

Still, trouble remains and the gaming industry, as a whole, is feeling the effects of the coronavirus.

Federal relief, in the form of stimulus incentives may be coming, but it could be too little too late for a rebound in time for the proposed acquisition.

Gene Neavin, a senior investment analyst and portfolio manager at Federated Hermes, explains, “The best comparison might be 9/11, when people were scared to fly. Now people may be scared not only to travel but also to be in a casino with thousands of people.”

Bloomberg tried to get input from the banks and the two casinos, but they all, with the exception of Macquarie, refused to comment.

Macquarie reportedly didn’t respond to requests for input.

The proposed funding would come via $2.4 billion in loans to Caesars and $4.8 billion worth of bonds and loans to Eldorado.

This is a massive amount of leveraged finance by any estimation and Eldorado is also counting on being able to reduce overhead by around $500 million to facilitate the process.

Should the acquisition go forward, the newly-formed company would have “debt relative to a key measure of earnings to over seven times, according to credit-rating firms, possibly leading to a downgrade”, which might scare off certain investors even more.

Shares in Eldorado have dropped more than 50 per cent in just two weeks as the entire hospitality industry has been sent spiralling downward because of the coronavirus.

Fortunately, things haven’t yet reached a point where the deal would definitively be withdrawn, but it is certainly teetering toward instability.

Reeg still remains optimistic though, and told shareholders at the end of last month, “We feel very good about the execution that we’ll get in the credit markets.

“This deal is closing. It’s closing soon.”

Eldorado gets more state approvals

As the acquisition of Caesars by Eldorado Resorts powers towards completion, the latter has to find approval from gambling regulators in all areas where business is conducted.

Calvin Ayre reported in January that Eldorado was given a nod of approval by regulators in Missouri last month for the merger, and has just announced that it has taken another step forward.

The Louisiana Gaming Board has just greenlighted the merger, as well.

Eldorado acknowledged the LGCB’s acceptance in a statement last week, explaining, “Eldorado announced that at a meeting today, the company received approval from the LHCB in connection with its pending acquisition of Caesars Entertainment Corporation, subject to customary conditions.”

Sixteen states, including Nevada and New Jersey still have to agree to the merger, but getting the second approval is a step in the right direction.

Once this acquisition finally wraps up, what will emerge is the largest gaming company in the United States.

Both Eldorado and Caesars are having to shed some of their properties to reduce the financial burden and to make the deal more apparent, and Louisiana’s approval comes just after Eldorado sold its Eldorado Resort and Casino in Shreveport to Maverick Gaming for $230 million in cash.

That sale reduced the post-merger footprint to just five properties in Louisiana, including Isle of Capri, the Belle of Baton Rouge, Harrah’s Louisiana Downs, Harrah’s New Orleans and Horseshoe Bossier City.

Given that there was no resistance on the part of the gaming board, it is unlikely that any further reduction in the Pelican State will be necessary.

However, there will be other properties eliminated from the long list of gambling venues controlled by the two companies, especially in Nevada.

Caesars has already begun work on shrinking its level of activity in the state, making a move to sell the iconic Rio and Harrah’s Rio.

The latter deal was just announced last week, and will see the property sold to Vici Properties, a real estate investment trust, for $50 million.


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