The future of some of Las Vegas' most iconic resorts is in the hands of a judge in Illinois, who could continue the status quo, or send the Las Vegas Strip into turmoil. Caesars Entertainment (NASDAQ:CZR) has been battling to keep a complicated corporate structure in place, keeping control of the company with its private equity owners, while billionaires on the other side fight to take Caesars into bankruptcy.
Who wins may determine the future of some of the most iconic resorts in Las Vegas.
What's up for grabs
Caesars Entertainment owns some of the biggest and most recognizable casinos on the Las Vegas Strip. Flamingo, Paris, Bally's, Planet Hollywood, and Caesars Palace are just a few of the casinos it owns, and its assets make up the heart of the Las Vegas Strip.
But the company is still struggling from the buyout by TPG Capital and Apollo Global Management in 2008, and being loaded with $20 billion in debt. After reporting billions in losses during the past five years, the company's largest subsidiary was forced to file for bankruptcy earlier this year. Now, creditors are trying to drag the entire company into what's called involuntary bankruptcy, which could reshape the Las Vegas Strip.
Who's in the fight
What we know right now is that Caesars Entertainment Operating Company, which owns Caesars Palace and a number of other casinos around the country, is in bankruptcy. After a convoluted restructuring that included the IPO of Caesars Acquisition Company (NASDAQ:CACQ) and the shuffling of debt around different subsidiaries, the subsidiary was forced into bankruptcy earlier this year.
It's easy to argue that the restructuring moves were just a strategy to keep Caesars Entertainment as a whole from going into bankruptcy, preserving some value for private equity firms TPG and Apollo. In fact, that's exactly what some creditors are arguing in court. The latest argument is about whether or not junior creditors' petition for an involuntary bankruptcy will be recognized, saving $468 million from being claimed by senior creditors who agreed to a restructuring in bankruptcy.
The battle pits billionaires Leon Black of Apollo Global Management and David Bonderman and James Coulter of TPG Group versus hedge fund giant David Tepper of Appaloosa Management LP. If Tepper wins and is able to pull the broader company into bankruptcy, he could reshape the Las Vegas Strip.
The future of The Strip hangs in the balance
It can't be underestimated how big the impact of the bankruptcy proceedings could be on Las Vegas. If Caesars Entertainment wins, it will continue to be operated by the same managers who have run it for seven years. Depending on your perspective, that could be a good or bad thing.
If creditors win, the heart of The Strip could be turned upside down. Caesars' pieces could be consolidated into one entity, as it was two years ago, and just given a new financial structure and management team. Or assets could be sold, shaking up The Strip as we know it.
Right now, there's not a lot holding the current Caesars Entertainment together. When Gary Loveman combined Harrah's and Caesars to create a national gaming giant, he thought a network of casinos nationwide and a strong loyalty program would lead to big success in Las Vegas. That's proven to be a faulty thesis at best when you consider that Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS) have stand-alone resorts that are the two most profitable on The Strip.
It may make sense to sell some assets to stronger resort operators. The properties around The Flamingo would make more sense as one megaresort instead of an amalgamation of low-end casinos. Caesars Palace may make more sense in MGM Resorts' (NYSE:MGM) portfolio because it owns the resorts around Caesars. It's even conceivable that Las Vegas Sands or Wynn Resorts could see opportunity with some of Caesars' land in the heart of The Strip.
In five years, I'd be shocked to see Caesars Entertainment continuing as the same company we see today. It simply has too many financial problems, so it makes sense to sell off some of its assets to a company that can do more with them. But whether or not that happens will be answered in court in a battle between some of the richest men in the country.