lbo ye2008 ye2009 ye2010 ye2011 ye2012 ye2013 ye2014
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LBO YE2008 YE2009 YE2010 YE2011 YE2012 YE2013 YE2014Balance Sheet Remote Insolvent Insolvent Insolvent Insolvent Insolvent Insolvent Insolvent
Cash Flow Remote Probable Probable Probable Probable Insolvent Insolvent Insolvent
Adequate Capital Remote Insolvent Insolvent Insolvent Insolvent Insolvent Insolvent Insolvent
ES Figure 1: Results of Balance Sheet, Cash Flow and Adequate Capital Tests
Examiners Report, Richard J. Davis, Executive Summary, p. 8
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Amount in Millions 2008 2009 2010 2011 2012 2013 2014Enterprise Value of CEOC
$14,629 $14,480 $14,072 $11,994 $12,179 $11,980 $6,059
Face Value of Interest-Bearing Debt (a) (b)
$17,885 $17,354 $17,795 $18,766 $20,529 $19,288 $18,371
Solvent/ (Insolvent) ($3,256) ($2,874) ($3,722) ($6,772) ($8,350) ($7,308) ($12,312)
ES Figure 2: Results of Solvency Analysis
Examiners Report, Richard J. Davis, Executive Summary, p. 8
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Equity Investments: Apollo - $1.325TPG - $1.325Friends - $3.400
$6.050B
Opco Debt:$14.0 (new)$ 4.5 (existing)$18.5B
$7.0 Bank$7.0 Bonds
Total Opco/Propco Debt: $25.0B
Propco Debt:$6.5 CMBS(new)
Caesars Entertainment Corporation (CEC)
The FlamingoThe ParisThe RioHarrah’s Las VegasHarrah’s Atlantic CityHarrah’s Laughlin
Property Company(PropCo)
Forty-six casinos, including Caesars Palace
Caesars Entertainment Operating Company (OpCo)
2008 LBO$90/share = $27.8B = 10 times 2006 EBITDA
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• July 2008: (6 months post LBO) PIK Toggle executed on $1.5B in bonds• 2008: operating profits down 1/3 year over year• Bank Bridge Loans Become “Hung Bridges”• Gambling revenue falls 20% (2007-2009)• Convention visitors in 2006: 6.3 million, in 2009: 4.5 million•March 2009: exchange $5.5B in bonds for $3.7B in bonds• December 2009: exchange $2.2B in bonds, for $1.8B in bonds• EBITDA 2012 $1.5B; interest expense $1.8B
Developments Post LBO/Pre-Growth & CERP Transactions(2008-2013)
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The FlamingoThe ParisThe RioHarrah’s Las VegasHarrah’s Atlantic CityHarrah’s Laughlin
PropCo
Caesers Interactive Entertainment/ Bonds
Apollo/TPG/Friends/ IPO Stockholders
Growth Transaction MechanicsApollo/TPG
(40%)
Caesars Growth Partners
CEC Contribution valued at $1.643 or 57%
CAC Contributes $1.2 or 43%
CEC
Caesars OpCoRemaining Casinos
Caesars Acquisition Corp (CACQ)
Graphics from “The Caesars Palace Coup”
Horseshoe BaltimorePlanet Hollywood
WSOP TM/IPWSOP TM/IPWSOP TM/IP
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Apollo Valuation Projection to Board (one month later)
Planet Hollywood - $579Horseshoe Baltimore - $260$1.15B Face Bonds - $1.15*CIE (Mobile Gaming) - $820
$2.75B
Growth Transaction ValueClosed: October 21, 2013
Valuation Committee – CEC “Contribution Valuation at Closing”
Planet Hollywood - $280Horseshoe Baltimore - $80$1.15B Face Bonds - $749CIE (Mobile Gaming) - $525
$1.634B
*assumption
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Cerp Transaction Mechanics
Caesars Growth Partners
Parent
Caesars OpCoRemaining Casinos
Caesars Acquisition Corp (CACQ)
New PropCo: Caesars Entertainment Resort Properties
(CERP)
The FlamingoThe ParisThe RioHarrah’s Las VegasHarrah’s Atlantic CityHarrah’s Laughlin
Graphics from “The Caesars Palace Coup”
Octavius Linq
Caesars Interactive EntertainmentHorseshoe Baltimore
Planet Hollywood
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Four Properties Transaction Mechanics
Caesars Growth Partners
Caesars Parent
Caesars OpCoRemaining Casinos
Caesars Acquisition Corp (CACQ)
Caesars Interactive EntertainmentHorseshoe BaltimorePlanet Hollywood
New PropCo: Caesars Entertainment Resort Properties
(CERP)
Octavius Linq
The FlamingoThe ParisThe RioHarrah’s Las VegasHarrah’s Atlantic CityHarrah’s Laughlin
Graphics from “The Caesars Palace Coup”
The CromwellThe QuadBill’s Las VegasHarrah’s New Orleans
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B-7 Transaction Mechanics
Caesars Growth Partners
Caesars Parent
Caesars OpCoRemaining Casinos
Caesars Acquisition Corp (CACQ)
The Cromwell Caesars Interactive EntertainmentThe Quad Horseshoe BaltimoreBill’s Las Vegas Planet HollywoodHarrah’s New Orleans
New PropCo: Caesars Entertainment Resort Properties
(CERP)
Octavius Linq
The FlamingoThe ParisThe RioHarrah’s Las VegasHarrah’s Atlantic CityHarrah’s Laughlin
Guarantee
Termination
Graphics from “The Caesars Palace Coup”
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CEC
CEOC
Apollo/TPG/Friends/Public Stockholders
AT ALL TIMES, Gary Loveman,plus either Michael Cohen or EricHession, were the only CEOCBoard Members.
100 %
“CEOC has no independent directors throughout nearly the entire period … nor didit have access to independent legal or financial advisors in connection with any ofthose transactions”
Examiners Report, Appendix 5 at p. 122
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D&O Exposure/LiabilityBusiness Judgment Rule
• Doesn’t second guess business decisions made in good faith by disinterested and independent fiduciaries of an insolvent company
• Burden on creditor/plaintiff
• A business decision must lack any rationally conceivable basis for a court to infer bad faith or breach of fiduciary duty
Entire Fairness
• Second guesses business decisions which must be objectively established to be the product of fair dealing, and at a fair price
• Burden on the Director/Defendant
• Fair dealing = proper initiation, evaluation, structure, negotiation and approval
• Fair price = consideration of assets, market value, earnings, and future prospects [objectively/not subjectively]Special Committee Save?
Yes, but here the commitees were at the wrong level with duties to the wrong board/corporation
Lack of Independence= being on both
sides of a transaction, either
directly, or via affiliation
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• In September 2016 Judge Goldgar granted the 2Ls access to the personal financial information of Apollo and TPG (the “Sponsors”) principals, arguing their personal financials were needed to evaluate proposed plan releases for the six individuals• The request included the financials of:
• Apollo co-founder Marc Rowan and partner David Sambur • TPG founding partner David Bonderman and partner Kelvin Davis • Caesars Entertainment CFO Eric Hession and former President Gary
Loveman
• The documents were to be released on a rolling basis beginning September 21st
and ending September 28th
• The six individuals appealed the ruling and sought a stay of the ruling pending appeal. Judge Goldgar denied the request to have their stay motion heard on an emergency basis
• On September 27th, one day before all personal financial information was due, the Sponsors agreed to forfeit their equity stake in CEC, which totaled an additional ~$1bn• This facilitated additional contribution to the estate, and enabled the
Debtors to reach a deal-in-principle with every class of creditors
You are ordered to release your personal financial information by Judge Goldgar. What do you do?
A
B
C
Release the financial information as ordered
Flee the country
Forfeit ~$1 billion to cut a deal
Sponsors Avoid Releasing Financial Information
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CEOC Case TimelinePrice of the Second Priority Notes (“2L Notes”) Throughout the Case
Overview of Significant Events
12/19/14: CEOC presents initial RSA to creditors 9/14/16: Judge Goldgar grants access to Sponsors’ financial information
1/12/15 - 1/15/15: 2Ls file involuntary petition (DE); CEOC files voluntary (IL) 9/21/16: CEC / Sponsors concede additional $1.6bn to CEOC estate
2/26/16: Judge Goldgar grants stay of litigation against non-Debtors 10/4/16: CEOC files consensual deal with increased consideration
3/16/16: Examiner releases report stating prepetition transfers could result in damages up to ~$5bn 1/17/17: Judge Goldgar confirms CEOC’s Plan of Reorganization
6/15/16: Judge Goldgar grants stay extension to 8/29/16 2/21/17: Caesars announces CEC / CACQ exchange ratio of 1.625
6/22/16: Disclosure Statement approved 4/15/17: CEOC prices $1.435bn Senior Secured credit facility at L+250 bps
7/30/16: CEC announces CIE’s sale of Playtika for $4.4 billion of cash 10/6/17: CEOC emerges from Chapter 11
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