Let’s say, for a moment, that you have $23 billion in long-term debt. And that you’re probably going to blow through another one to two billion dollars in cash by the end of the year, and you’ve got letters flooding your mailbox from lenders asking you to pay up, especially since at least $1 billion of that money is due in the next nine months. First, you should congratulate yourself on being as wealthy—at least in hypothetical money—as a Las Vegas casino, but then you might want to do what Caesars did when faced with the same problem: call up some Las Vegas bankruptcy attorneys to help you squeeze out of the impossibly tight space.
Caesar’s Entertainment Corp. admitted desperation last month when they literally received “letters from two law firms claiming to act on behalf of lenders and bondholders who contend…Caesars is insolvent.” Luckily for the corporation, all that money, or at least all that debt, will pay for some great Las Vegas bankruptcy attorneys who, along with their consulting finance gurus, worked out a plan to restructure part of that $23 billion Caesars owes.
The secret? Borrowing more. Yes, it seems counter-intuitive to us too, but we’re not the financial gurus who recommended that Caesars raise $1.75 billion more in new debt that has longer maturity dates, with proceeds used to pay the $1 billion owed in 2015. Actually, that sounds fantastic. Borrow more now, pay later. Only Caesars will be paying more later: at least $750 million, and despite assurance by their Las Vegas bankruptcy attorneys, mostly hired to fend off the menacing letters from the bondholders, the future is somewhat uncertain for the gambling giant.
“Upon completion of the credit facility amendment announced today, Caesars will have added headroom under its maintenance covenant, providing Caesars with additional stability to execute its business plan,” is the statement issued by Caesars Chairman and CEO Gary Loveman. To which lay people reading the article respond, “mmm hmm,” nodding like we understand. Business analysts and lawyers like Robert Ryan are more familiar with Las Vegas business and finance concerns, and have commented that Caesars may have a chance of survival in the long term, but it could come at a cost.
Or at least the appearance of one. Having to sell three of its properties sure looks like a loss to the company, until upon further investigation, we find the properties are being sold to Caesars Growth Partners. Caesars Growth Partners is owned in the majority by, yep, you guessed it, Caesars Entertainment Corp.
Now, let’s say you have $23 billion in debt in your right hand. And you take $5 billion out of your right hand and put it in your left. Now you only have $18 billion and $5 billion. But it’s still debt, right? They may not be fooling lawyers like Ryan or industry analysts, but it’s a tricky enough trick that the Las Vegas bankruptcy attorneys and finance guys on Caesars’ side managed to boost the price of shares by 7.76% after the announcement of their debt restructuring plan. Tada, welcome to Vegas.