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Caesars Gains on New Project Venture

NEW YORK ( TheDeal) -- Caesars Entertainment Corp. (CZR - Get Report) extended its 2013 surge as the casino operator said this week it may raise as much as $1.2 billion through a venture unit to finance new projects.

Caesars added 0.4% in New York to $15.97, to extend its 2013 advance to 131%.

Las Vegas-based Caesars operates resorts under the Harrah's, Caesars and Horseshoe brand names, and also owns the World Series of Poker and the London Clubs International family of casinos. Hampered by debt of roughly $20 billion, Caesar's posted adjusted Ebitda of $1.94 billion on net revenue of $8.59 billion in 2012, little changed from the previous year.

Private equity firms TPG Capital and Apollo Global Management LLC, which acquired Caesars in January 2008 in a deal valued at $30.7 billion, including $12.4 billion in debt, hold a 69.9% stake in the company. They expect to inject as much as $500 million into the new unit.

What Caesars is doing with this transaction, according to analysts, is to raise money for operations and expansion, rather than to get out from under its $20 billion debt burden.

Instead, the proceeds will be used to "extend its liquidity out a couple of years," CreditSights Inc. senior analyst Chris Snow said.

Roth Capital Partners LLC managing director Eric Rindahl agreed, saying that the new growth company is not meant to reduce Caesars' outstanding debt but to expand the parent company so it can keep up with competition.

"This is not meant to delever Caesars," Rindahl said. "This allows the owners of Caesars to use capital to make new investments without paying down debt. Caesars has to invest to survive."

Caesars' debt-to-Ebitda stands at about 13.6 times, according to Moody's Investors Service.

To that end, Caesars is selling various assets to the new entity, including a stake in Internet gambling unit Caesars Interactive Entertainment Inc. It is selling stakes in Planet Hollywood Resort & Casino in Las Vegas and the Horseshoe Baltimore casino project, which is in development, as well as a stake in the management fee for these two properties to Caesars Growth Partners, and is also contributing $1.1 billion of senior notes issued by subsidiary Caesars Entertainment Operating Co. The total value of these assets is about $1.6 billion, according to regulatory filings.
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