February 8, 2012 / 2:00 AM / in 6 years

UPDATE 2-Caesars IPOs but owners still down

* 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 (Reuters) - 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 buyout.

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 back.

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 the offering.

Our Standards:The Thomson Reuters Trust Principles.
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