Caesars Selling $1.2 Billion in Bonds to Retire Other Debt

Posted on: September 12, 2021, 11:56h. 

Last updated on: September 12, 2021, 03:32h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Caesars Entertainment (NASDAQ:CZR) is selling $1.2 billion in senior notes to higher interest rate debt that’s maturing sooner than the new offering.

Caesars debt sale
Caesars is selling $1.2 billion in debt. The move reduce financing costs. (Image: Las Vegas Review-Journal)

The casino operator said last Friday it priced $1.2 billion worth of corporate debt at 4.625 percent coming due in 2029. The offering is expected to commence on Sept. 24, and in a sign of ongoing strong demand for gaming industry commercial paper, Caesars upsized the sale by $200 million.

The Company intends to apply the net proceeds of the sale of the Notes, together with cash on hand, (i) to tender, redeem, repurchase, defease or satisfy and discharge all of the 5.250 percent Senior Notes due 2025 of Caesars Resort Collection, LLC, a wholly-owned subsidiary of the Company, together with all accrued interest, fees and premiums, and (ii) to pay fees and expenses related to the foregoing,” according to a statement.

The issue size of the bonds maturing in 2025 is $1.7 billion, according to Moody’s Investors Service. That means Caesars will use the new debt sale and cash on hand to redeem the higher rate issue.

Caesars, Gaming Companies Effectively Accessing Capital

Caesars’ debt sale is the latest sign that gaming companies are enjoying easy access of capital.

In addition to the Caesars bond sale, Las Vegas Sands’ (NYSE:LVS) Sands China unit last week priced $1.95 billion in senior unsecured notes in three tranches – $700 million of 2.30 percent senior notes due 2027, $650 million of 2.85 percent senior notes due 2029, and $600 million of 3.25 percent senior notes due 2031.

Prior to that, VICI Properties (NYSE:VICI) said it’s selling up to 115 million shares to fund its purchase of the property assets of the Venetian, Palazzo and Sands Expo and Convention Center from Las Vegas Sands.

In the case of Caesars, although the company carries a junk credit rating, the new note sale is likely attractive to corporate bond investors due to the interest rate, which is more than triple what’s offered by 10-year Treasuries, and relatively low default risk.

‘Credit Positive’ for Caesars

Moody’s Investors Service says the fresh bond sale is constructive for Caesars.

“The transaction is credit positive because it will extend Caesars’ debt maturity profile and reduce debt and leverage,” said the ratings agency. “Moody’s expects the earnings gains and debt reduction funded from positive free cash flow and asset sale proceeds will reduce leverage from the peaks hit during the coronavirus and improve the company’s financial flexibility, aided by very good liquidity, to manage amid the lingering effects of the pandemic.”

Moody’s rates the new Caesars issue Caa1, but has a B2 rating on the company with a stable outlook.

“The stable outlook reflects the recovery in the company’s business exhibited in the second half of 2020, and Moody’s expectation for continued sequential improvement in 2021. The stable outlook also incorporates the company’s very good liquidity and Moody’s expectation for leverage to continue to come down from current elevated levels as the business recovers and debt is reduced from free cash flow and asset sale proceeds,” according to the research firm.