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The Deal: Caesars Plummets Amid Fears of Bankruptcy

Still, with $1.9 billion in liquidity as of June 30 and under-construction projects such as its Linq shopping and entertainment strip in Vegas still requiring hefty capital expenditures, Caesars needs a more proactive approach to address its upcoming maturities.

For now, the company is focusing all of its restructuring efforts on spinning out a new entity, Caesars Growth Partners, which will include Caesars' online gaming properties, its Horseshoe Baltimore casino and Planet Hollywood Resort & Casino in Las Vegas, along with an infusion of $1.2 billion from existing shareholders, which will include $500 million from its majority owners Apollo and TPG Capital.

The spin-off will give Caesars a vehicle for growth--the gaming market is highly competitive, and requires substantial capital expenditures to keep up properties--but it doesn't help the company pay down its debt. Growth Partners will be a separate corporate entity from the operating company and the unit that owns the properties, and it will have a more attractive leverage profile.

Caesars' existing units are steeply levered: The operating company has a leverage ratio of 12.96, while the property-owning unit is levered at 10.4 times, according to Fitch.

Still, the Growth Partners transaction leaves the operating company's creditors out in the cold. "They've tried to maneuver assets away from the [operating company], so the overall [operating company's] value is weaker," said Fitch analyst Michael Paladino, adding that this transaction reduces the prospect of recovery for the operating company's creditors.

"They're choosing to reinvest in assets rather than paying down external creditors--they're not looking to pay down any external creditors without significant discount," he added.

Paladino said he believes the operating company's first-lien creditors can expect a return of 70 cents on the dollar. Once Caesars completes the Growth Partners' spinoff, which is currently awaiting regulatory approval, Paladino expects the casino operator will turn its attention to debt refinancing options. Hiving off the assets with the most growth potential is attractive for Apollo and TPG, which will own slightly under half of the new unit if it raises $1.2 billion as planned.

Private equity firms Apollo and TPG hold 69.9% of the company, which they acquired in a $30.7 billion buyout in 2008 that included $12.4 billion in debt.
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