* Sells 1.81 mln shares at $9, middle of indicated range
* Move offers liquidity for minority investors
* Apollo and TPG face huge hurdles to exit profitably
By Greg Roumeliotis and Brenton Cordeiro
Feb 7 Debt-laden Caesars Entertainment
Corp, one of the largest casino operators in the United
States and owner of the famed Caesars Palace, raised $16.3
million in an IPO on Tuesday, a fraction of what it was hoping
to muster two years ago.
Caesars' private equity owners, Apollo Global Management LLC
and TPG Capital LP -- which are holding on to
70.1 percent of the company -- made a bold bet when they took
the company private in 2008 in a huge $31 billion leveraged
The deal is often referred to an example of how the credit
bubble that preceded the financial crisis of 2008 led to
overleveraged deals that have left their private equity
investors with a Herculean challenge of getting their money
The company's cash flow is getting eviscerated by interest
payments. According to the IPO prospectus, Caesars' earnings
before interest, tax, depreciation and amortization (EBITDA)
were $1.8 billion in the 12 months ending Sept. 30 on interest
expenses of $1.93 billion.
"Caesars' pending IPO, which can raise up to $18 million,
will have no material impact on Caesars' credit profile," Fitch
Ratings said in a statement earlier on Tuesday.
"With Caesars' leverage at above 11 times, Fitch has a
circumspect view regarding Caesars ability to execute a
meaningful equity float," the credit rating agency added.
The company said it sold 1.81 million shares on Nasdaq at
$9 per share valuing its equity at $1.13 billion. At this level,
the middle of the advertised range, Caesars had said it expected
net proceeds of $13.1 million.
This is a drop in the ocean compared to what the buyout
firms splashed out. Apollo alone invested $1.45 billion in the
deal, according to a regulatory filing the private equity firm
submitted last year as part of its flotation.
STILL IN THE GAME
Caesars had filed for an IPO in 2010 under its former name,
Harrah's Entertainment, hoping to raise some $500 million, but
had to ditch the plans as the company's debt became too much for
investors to handle.
It had about $18.5 billion of net debt on its books as of
Sept. 30. Its focus on the U.S. and Britain has not helped the
company capture growth in popular gambling destinations in Asia
such as Macau and generate more cash to cut its debt.
Caesars operates 52 casinos, mainly in the United States and
England, including the Mecca of gambling, Las Vegas, under the
Caesars, Harrah's and Horseshoe brands. It said in its IPO
prospectus it did not expect to pay dividends to shareholders
for the foreseeable future.
"I'm not sure that Las Vegas is coming back the way they
wanted to, they're underwater right now and what I advise people
is to buy one share and put it up on their wall, but don't buy
and hold it," IPOdesktop.com analyst Francis Gaskins said.
The game is not over for the private equity firms that are
hoping to make up their loses by they time they exit Caesars.
The companies are lobbying heavily for the U.S. to lift its ban
on online gambling. The online poker industry generated an
estimated $1.5 billion in revenues before internet gambling was
banned by the U.S. government in 2006, Caesars said.
Caesars is also looking to get some breathing space from its
creditors by pushing back the maturity of $4 billion in loans
from 2015 to 2018 in exchange for a higher interest rate and to
issue $1.25 billion in senior secured notes so it can pay down
another $1 billion in loans.
The shares offered in the IPO make up just 1.4 percent of
the company's total float. But the move will offer minority
investors the liquidity to exit as it allows them to sell 34.7
million shares following the offering out of the company's total
125 million shares.
Hedge fund Paulson & Co may sell its 9.9 percent stake while
a group of investors that include funds of Goldman Sachs Group
Inc and Blackstone Group LP may sell their stakes
that total 17.9 percent, half straight away and the other half
after six months.
Credit Suisse and Citi led a total of seven underwriters on