Guest fedcep Posted July 20, 2014 Share Posted July 20, 2014 CZR is a highly levered LBO by Apollo currently going though a lawsuit by some high profile bond holders. It's a pretty particular situation with two pitches on VIC: one long, one short, both losing money. It's a rather complicated situation so was wondering if anyone had looked at them in detail. Link to comment Share on other sites More sharing options...
muscleman Posted January 16, 2015 Share Posted January 16, 2015 The discussions in the SHLD thread got my attention, and I started looking into it. I do not have much experience with bankruptcy plays. Please share with me your insights. I did some quick Googling and here are notes of John Paulson's presentation in 2012. ========================================= Caesars (CZR): Stock with high option value. Was LBO. Common is only 7% of valuation, $1.7B, Opco Debt $16.9B, Net PropCo debt $4.8B. $23B total cap. So equity gets the upside. LBO guys put $6B in, now equity only $1.7B. Says they are turning around. Stock owners have not only gaming properties, but Social gaming company worth $6-9, Online gaming could be $24 per share. Key is growth. Are seeing RevPAR growth. Added Octavius Tower. Adding Cleveland. 2013 LINQ in Vegas, Cincinnati. Online gaming upside option. No debt due until 2015. Three years runway. 2007 they did $2.8B EBITDA, LBO at 11x. Guess they get back, adjusted to new facilities, $3.2B Likes hotels because the rates increase with inflation. Online gaming may be another $300M, so total to peak, get to $3.5, with 11x multiple stock is $138, a 10x upside. (that's way too rosy) ========================================= How likely do you expect Apollo's plan to succeed? If succeeded, how much upside do you think there is? If the plan fails, how much loss will the equity holders suffer? It sounds to me like a total wipe out of the equity holders if the plan fails, no? Some of the junior bond holders include Appaloosa Management LP, Oaktree Capital Group Holdings LP and Elliott Management Corp. These are all big names. Here is part of a post in SHLD thread: ========================================== Anyone here following what's going on at Caesars? I think it might be illuminating! http://www.bloomberg.com/news/2015-01-15/caesars-letting-apollo-tpg-keep-1-8-billion-fuels-creditor-ire.html http://www.bloomberg.com/video/caesars-bankruptcy-sets-up-showdown-with-dissident-creditors-JAdBvolzRsC_4H9M_259TQ.html http://www.bloomberg.com/video/caesars-bankruptcy-apollo-tpg-beat-the-house-8DKEHXU4Q3u82_XySAyodw.html Link to comment Share on other sites More sharing options...
philly value Posted January 16, 2015 Share Posted January 16, 2015 Make sure you understand the corporate and capital structure very well, as that is the key to this type of situation and Caesars is particularly complicated. Looking at things on a consolidated basis is useless. The only entity going into bankruptcy is CEOC where most of the debt is. The pre-filing equity in CEOC is indeed 100% worthless and even the second lien bonds at CEOC are roughly worthless. First lien and bank impaired to a small degree. CZR's ties to CEOC are that it owns almost all of the equity (sold off a small stake because that enabled them to cut off previously existing parent co guarantee of CEOC debt) CZR equity is very unlikely to be wiped out in any scenario, although the value will vary of course because parent will likely (a) contribute some assets to restructuring, because it is in the interest of the entity as a whole to have a solvent CEOC, (b) the parent still guarantees bank debt at CEOC which is likely to be impaired. But it would take some crazy litigation for the equity to be wiped out there. May be diluted if parent equity is offered as part of a deal. As for litigation CEOC bondholders have indeed been throwing around fraudulent conveyance (assets from CEOC were sold over the past year or two to CGP). Link to comment Share on other sites More sharing options...
muscleman Posted January 16, 2015 Share Posted January 16, 2015 Make sure you understand the corporate and capital structure very well, as that is the key to this type of situation and Caesars is particularly complicated. Looking at things on a consolidated basis is useless. The only entity going into bankruptcy is CEOC where most of the debt is. The pre-filing equity in CEOC is indeed 100% worthless and even the second lien bonds at CEOC are roughly worthless. First lien and bank impaired to a small degree. CZR's ties to CEOC are that it owns almost all of the equity (sold off a small stake because that enabled them to cut off previously existing parent co guarantee of CEOC debt) CZR equity is very unlikely to be wiped out in any scenario, although the value will vary of course because parent will likely (a) contribute some assets to restructuring, because it is in the interest of the entity as a whole to have a solvent CEOC, (b) the parent still guarantees bank debt at CEOC which is likely to be impaired. But it would take some crazy litigation for the equity to be wiped out there. May be diluted if parent equity is offered as part of a deal. As for litigation CEOC bondholders have indeed been throwing around fraudulent conveyance (assets from CEOC were sold over the past year or two to CGP). Thank you! You understand the situations much better than me. :D Why are you convinced that the Junior bond holders are unlikely to claim the parent's equity? According to this article, the Junior bond holders will fight for this "And" interpretation and try to get parent guarantee. http://www.bloomberg.com/news/2014-05-12/caesars-makes-and-four-letter-word-to-lenders-distressed-debt.html Link to comment Share on other sites More sharing options...
ScottHall Posted January 16, 2015 Share Posted January 16, 2015 I made a very, very good annualized return selling puts on this that expired today. It's an interesting situation that few folks seem to have any understanding of. Link to comment Share on other sites More sharing options...
muscleman Posted January 17, 2015 Share Posted January 17, 2015 I made a very, very good annualized return selling puts on this that expired today. It's an interesting situation that few folks seem to have any understanding of. Could you please share your thoughts on this situation? Link to comment Share on other sites More sharing options...
ScottHall Posted January 17, 2015 Share Posted January 17, 2015 https://twitter.com/ScottMONEYHall/status/550103512773050368 Link to comment Share on other sites More sharing options...
muscleman Posted January 20, 2015 Share Posted January 20, 2015 https://twitter.com/ScottMONEYHall/status/550103512773050368 Thanks! I understand what's recourse vs non-recourse loans and I understand the corporate structure here. I read your comments there and you believe the parent guarantee of the CEOC debt will be removed effectively. Therefore there is value in parent's equity. I was trying to find out the downside first before looking at the upside. Given these debt holder contests, how likely do you think that they could get the court agree to the parent guarantee? It seems like if parent guarantees the debt then equity holders will not end up well. http://www.bloomberg.com/news/2014-05-12/caesars-makes-and-four-letter-word-to-lenders-distressed-debt.html Link to comment Share on other sites More sharing options...
ScottHall Posted January 20, 2015 Share Posted January 20, 2015 https://twitter.com/ScottMONEYHall/status/550103512773050368 Thanks! I understand what's recourse vs non-recourse loans and I understand the corporate structure here. I read your comments there and you believe the parent guarantee of the CEOC debt will be removed effectively. http://www.bloomberg.com/news/2014-05-12/caesars-makes-and-four-letter-word-to-lenders-distressed-debt.html I did not say that. I explained what could happen. I was short the puts because the annualized yield was pretty nuts and the strike was low enough I was pretty sure I wouldn't get put any shares, and that there was a good enough chance CZR would pull off its restructuring to justify the risk. It worked out, though I was very lucky. It was a very small position. If I take another one, I'll have to account for the new information in guessing whether another short put is a good wager or not. I usually try to "think" as few things as possible. My job forces me to "think" more things than I'd like, but when it comes to my speculations (as opposed to long term holdings), I care more about probability and magnitude of gains and losses than anything else. A good example of this recently is Ocwen. Although I haven't purchased any shares, I was bullish on them at around $20. Not because I had supreme confidence that the NYDFS settlement/other actions would work out in favor of shareholders, but because I thought the risk/reward was sufficiently skewed to justify a purchase regardless. Not a large one, granted, but a purchase nonetheless. As you have probably seen, so far I've been wrong about Ocwen. I may ultimately end up being right about it, or it could go to zero, or it could stay about where it is. I won't be concerned in the least about any of these outcomes, because I knew they were each possible from the outset and were incorporated into my analysis and decision only to recommend buying a small position. Although not the case here, in other words, I'm willing to make investments that I think have a <50% chance of working out favorably given sufficient odds. As an extreme example, if I was given a proposition where I had a 10% chance of making 100x my investment and a 90% chance of losing my investment, I'd do it all day long even though I'd be an underdog on each individual investment. It doesn't matter that I'd lose 9 out of 10 trials, because the bet has a positive expectation. Now, you'll never really be able to get exact odds. You can only make approximations. But approximations are all you really need to do well over time, so long as you're in the ballpark one way or the other. Even if you do get a goose egg once in awhile. In the case of Caesars, I ended up making good money. I also got very lucky. That's the most important thing, you know. You can always get lucky in the stock market. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted January 20, 2015 Share Posted January 20, 2015 Even if CZR is found NOT to committed fraudulent conveyance...I still don't see how this company is worth it's current quote. The only way they might make money is if almost all the debt is wiped out. I don't think that is going to happen under even the most optimistic assumption for equity holders. Link to comment Share on other sites More sharing options...
muscleman Posted January 20, 2015 Share Posted January 20, 2015 http://investcorrectly.com/20150120/caesars-entertainment-corp-czrs-violates-federal-laws-bankruptcy-gets-complicated/ It sounds like the Junior lien holders are making progress? The spokeman of CZR says even if Junior holders win, it won't affect the restructuring given their small size. Why is that? I am not sure. Junior liens are over $5 bn. That's not small. Link to comment Share on other sites More sharing options...
muscleman Posted January 21, 2015 Share Posted January 21, 2015 Even if CZR is found NOT to committed fraudulent conveyance...I still don't see how this company is worth it's current quote. The only way they might make money is if almost all the debt is wiped out. I don't think that is going to happen under even the most optimistic assumption for equity holders. Right.... Excluding impairments, this company is losing 2 Bn per year. Even if restructuring succeeds and interest payment is reduced from 1.7 bn to 0.45 bn, the company would still lose 0.7 bn per year. CACQ's earnings seem to be weak as well. I am not sure how the merger would save the whole company. ::) I guess I will just pass. Link to comment Share on other sites More sharing options...
cameronfen Posted April 27, 2018 Share Posted April 27, 2018 I don't know if anyone is looking at CZR, but emerged out of bankruptcy and at first glance appears they only have 1.1 billion in debt (and 1 billion in cash). Taking out restructuring and loss on bond extinguishment, should earn almost 2 billion in EBIT. Currently trading at 7 billion market cap. Link to comment Share on other sites More sharing options...
thepupil Posted April 27, 2018 Share Posted April 27, 2018 http://investor.caesars.com/static-files/11ae953b-139e-4ee8-87a4-c995c6bfb8f8 Shows $8B of total debt on slide 15, right? Link to comment Share on other sites More sharing options...
cameronfen Posted April 27, 2018 Share Posted April 27, 2018 oh my fault I was just looking at the hold-co on the 10K and thinking to myself, this looks too good to be true. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now