Montrealer Mitch Garber’s long winning streak in the gaming industry is about to be sorely tested.
A division of Caesars Entertainment Corp. that he heads is taking over four of the slumping parent company’s casino properties in a convoluted $2-billion deal that essentially provides Caesars with a needed cash infusion while relieving it of the financial burden of upgrading those properties.
Las Vegas-based Caesars Entertainment, which has more than $20 billion in long-term debt, announced Monday it is off-loading Bally’s, The Cromwell and The Quad Resort & Casino in Las Vegas, as well as Harrah’s New Orleans, to Caesars Growth Partners.
Caesars Growth Partners, owned jointly by publicly-traded holding company Caesars Acquisition Co. (42 per cent) and Caesars Entertainment (58 per cent), in turn owns Caesars Interactive Entertainment, the 50-employee division in Montreal that Garber has overseen since 2009 and is mostly involved in online and interactive gaming, though it also holds the Planet Hollywood (Las Vegas) and Horseshoe (Baltimore) casinos.
Caesars Growth Partners is the healthiest part of the Caesars empire these days, which is why it was enlisted to help out the heavily-indebted parent company.
The acquired casinos all need, or are undergoing, major upgrades. The Quad will get a $223-million renovation as part of the deal, the reopening of the shuttered Cromwell is scheduled for May and there are also changes in the cards at Bally’s.
“We’ll be able to make capital improvements Caesars (Entertainment) wouldn’t be able to make, because we’re not as leveraged,” said Garber, who is chief executive of Caesars Acquisition Co. and Caesars Interactive, and has a long involvement in the gaming industry as a lawyer and as an executive. Before joining Caesars in 2009, he worked at Gibraltar online gambling company PartyGaming.
“My goal is to improve the value of these assets,” Garber said. “I’m very excited about it.”
Though the four casinos will fall under the wing of Caesars Growth Partners, Caesars Entertainment will continue to manage them and has the option to reacquire them in a few years, at fair market value.
While North American casinos were once considered recession-proof, they’ve had a significant change of fortune in recent years, particularly since the financial crisis of 2008-09, and Caesars Entertainment is among those hurting.
It reported a net loss of US$1.5 billion in 2012 on revenue of US$8.5 billion, up from a loss of US$687 million on similar revenue a year earlier. The numbers for 2013 will be made public next week, and even larger losses are expected.
Moody’s Investor Services downgraded its rating on Caesar’s a year ago and speculated then the company might pursue what it called a “distressed exchange” to address “what we believe is an unsustainable capital structure.”
- By Paula Delean | email@example.com