Published On: Mon, Jun 30th, 2014

Caesars Entertainment Closing Its Showboat Atlantic City Casino August 31st

Credit Suisse Takes Over Resorts Atlantic City

Showboat_Atlantic_City and Leon Black
Late Friday casino operator Caesars Entertainment, which is owned by a group of private investors led by Leon Black’s Apollo Global Management, announced it is closing its Showboat casino in Atlantic City, New Jersey.The closing, which will take effect at the end of August, comes after persistent declines in its business, not helped by high property taxes levied on casino operators in Atlantic City.Gary Loveman, the Chairman and Chief Executive Officer of Caesars Entertainment said of the closing, ”While we regret the impact that this decision will have on our Showboat associates, we believe this is a necessary step to help stabilize our business in Atlantic City and support the viability of our remaining operations in the vicinity.”

Caesars has suffered particularly in Atlantic City, where it is the largest casino operator with three other major properties and Loveman was also quick to point out, “Since 2006, revenue in Atlantic City has declined by more than US$3 billion and competition in the city has increased. The dynamic in Atlantic City has led us to the difficult but necessary decision to close Showboat in an effort to help stabilize our business there and support the viability of our remaining operations in the vicinity. We sincerely appreciate the service, dedication and professionalism shown by the employees of the Showboat over the years to provide our customers with incredible experiences.”

The company’s casinos and resorts operate nationwide primarily under the Caesars, Harrah’s and Horseshoe brand names. While Caesars is the largest casino operator in the U.S., with properties in Las Vegas, Atlantic City, New Jersey, Indiana,  Louisiana, Mississippi and several other states, it was particularly hurt during the recent recession because it does not have a single casino in Macau.

Rival companies MGM Resorts International, Wynn Resorts and Las Vegas Sands Corp all have currently booming casinos in the former Portuguese gambling enclave of Macau, which is now part of China – and just one hour away from Hong Kong by sea.

Leon Black’s Apollo Global Management, Stephen Schwartzman’s Blackstone Group, and David Bonderman’s TPG Group originally made the acquisition together as a leveraged privatization buy-out in 2006, in a deal which has left the company still saddled with over US$23 billion of debt as at March 31st, 2014.

Current debt maturities of over US$5 billion are coming up between that date and the end of 2015 as well, threatening its liquidity. Blackstone Group itself is no longer a significant shareholder having exited in early 2012 when the company listed publicly again, with most of the shares for the listing coming from a secondary offering of its holding.

With the subsequent US economic melt-down that ensued after the Lehman Brothers bankruptcy in 2008, the domestic gaming and hospitality company struggled with declining cash flows, and the company has continued to show disappointing earnings even as economic conditions have revived more than five years later. For the, post-holiday period, quarter to March 31st, 2014, Caesars posted a loss of US$383 million, compared to a loss of just US$217 million a year earlier.

Caesars Entertainment and one group of its bond-holders in particular, David Tepperman’s Appaloosa Management, have lately been at loggerheads as well. Caesar’s Entertainment has been planning to move its ownership of four of its casinos to a separate subsidiary, which Appaloosa alleges could be an example of fraudulent transfer designed to remove them from possible future legal attempts by creditors to seize certain assets of the company if indeed it should go under.

This dispute could be said to be very much a case of “private equity incest” however. These huge private equity firms tend to collaborate with each other on so many different deals, and try to work things out when things do go wrong when they are on different sides of the table, that one can speculate this issue may go away as well at some point, even if Caesars’ shareholders end up injecting more equity into the business – as, by way of example, KKR did recently in one of its own businesses that had been struggling, First Data Corporation.

 

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