Caesars sells $1.5 billion in bonds, secures new $2 billion term loan
Caesars Entertainment Inc. (NASDAQ: CZR ) said Wednesday it will sell $1.5 billion in corporate bonds in a private placement to qualified institutional buyers.
Proceeds from the sale of these notes due 2032, along with a portion of a newly drawn $2 billion term loan facility, will be used to tender the operator's outstanding senior secured notes bearing interest at 6.250% and maturing in 2025.
The Company intends to use the net proceeds from the sale of the Notes and the New Term B-1 Loan (x) to (a) offer, redeem, repurchase, claim or satisfy all 6.250% of the Company's shares and replace them. Senior Secured Notes due 2025, and (b) payment of fees and expenses related to the transactions described above, and (y) whether the remaining proceeds are used for general corporate purposes, including, but not limited to, the repayment of the Company or one of its outstanding indebtednesses subsidiary,” according to a statement from the Nevada-based casino operator.
Caesars has $3.39 billion outstanding on the 2025 bonds it announced last week. The press release did not mention the interest rate on the newly listed debt.
Caesar’s wise move
Despite the company's junk credit rating, the sale of the new notes is likely to appeal to corporate bond investors because Caesars' non-investment grade status means it will have to compensate market participants for the higher risk involved.
That's one reason there's strong interest in the Harrah's operator's new bond issue. Another reason could be that while the gaming company is bringing new debt to the market, the sale is consistent with its deleveraging efforts as it delays maturities and removes some high-interest debt in the process.
This is a tactic the company has used in the past. Nearly a year ago today, Caesars told investors it had increased the size of its senior secured loan facility to $2.5 billion from $1.75 billion, reducing some of the debt it incurred this year and matures in 2025.
The moves announced Wednesday allow the Flamingo operator to reduce interest expenses, which is significant as Caesars' interest expense on outstanding debt in 2022 will be $2.3 billion.
Why it matters
The deal announced Wednesday will help Caesars improve its maturity profile, reduce interest expenses and further reduce leverage. But selling bonds has other implications.
First, it shows that gaming companies - even ones as heavily indebted as Caesars - have access to capital. At a time when interest rates are at their highest levels in two decades, this should not be undermined.
Second, it suggests there may be interest in commercial paper issued by Caesars. While the interest rate on the new bonds may reflect its junk rating, Caesars has the means to meet these obligations, which may bolster confidence among professional fixed-income investors.
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Source: www.casino.org
