Eldorado Resorts to Raise $1.2bn Capital Ahead of $17bn Caesars Merger

  • Casino entertainment company to sell 18 million shares of common stock for $692m
  • It agreed $400m mortgage deal with VICI Properties for Caesars Forum Convention Center
  • VICI will also be acquiring 23 acres of Las Vegas land from Eldorado for $103.5m
  • Merger with Caesars expected to close in July following a number of setbacks
Illuminated neon sign of Eldorado casino
Eldorado Resorts is selling 18 million new shares and has entered into agreements with VICI properties to strengthen its finances ahead of its merger with Caesars. [Image: Shutterstock.com]

Steps include issuing new shares

Eldorado Resorts Inc. has revealed plans to issue new shares and sell Las Vegas real estate among a number of moves intended to bolster finances ahead of its $17.3bn merger deal with Caesars Entertainment Corporation.

On Monday, the casino entertainment company announced it had commenced an underwritten public offering of 18 million shares of common stock, with the proceeds going towards “general corporate purposes”.

selling all of the shares would raise nearly $692m

Based on Monday’s closing price of $38.44, selling all of the shares would raise nearly $692m. The deal’s underwriters have a 30-day window in which they can purchase a further 2.7 million shares in Eldorado.

VICI Properties agreements

In additional finance-strengthening measures, the casino operator will acquire a $400m loan from VICI Properties, a real estate investment trust affiliated with Caesars Entertainment. The deal will seek to mortgage the recently opened Caesars Forum Convention Center in Las Vegas.

The five-year mortgage is subject to an interest rate of 7.7% at a yearly escalation rate of 2%. It will be pre-payable beginning in the third year, subject to certain conditions. John Payne, president and COO of VICI, said the Caesars Forum Convention Center is setting “a new standard for convention facilities” and described the company as “thrilled” to complete the transaction.

VICI has also agreed to acquiring around 23 acres of undeveloped land that is adjacent to the Las Vegas Strip center. The area will be bought for $4.5m per acre for the sum of $103.5m.

around $1.2bn from the real estate transactions and share sales combined

The two transactions will generate total proceeds of $503.5m, with both deals expected to close in the third quarter of 2020. Eldorado CEO Tom Reed said the combination will serve to “strengthen our balance sheet and provide added liquidity.”

Eldorado Resorts will raise around $1.2bn from the real estate transactions and share sales combined.

The Eldorado-Caesars merger

The VICI transactions are conditioned upon a non-binding letter of intent and the completion of Eldorado’s planned merger with Caesars.

will create the largest gambling operator in the US

Eldorado’s cash and stock merger with Caesars, which will create the largest gambling operator in the US by number of properties, is expected to close at the end of July after being agreed in June of last year. The pair opened M&A talks after Caesars’ largest individual shareholder, Carl Icahn, expressed his interest in selling the company.

Icahn had described the agreement as “a quintessential example of how an activist shareholder, working collaboratively with the board, can greatly enhance value for all stockholders.”

In November 2019, the shareholders of both casino operators agreed to the deal, which was subject to stakeholder approval. Holders of over 99% of Eldorado and Caesars shares voted in favor of the merger.

Setbacks for the deal

The deal between Eldorado and Caesars encountered a number of delays earlier this year. The Federal Trade Commission (FTC) has not yet completed its review of the merger agreement, which has delayed state approval in Nevada and New Jersey.

According to Brendan Bussman, director of government affairs for Las Vegas-based Global Market Advisors LLC, any FTC delay is a result of the COVID-19 pandemic rather than any issues with the deal itself.

The original deadline date for the deal’s completion was 25 March 2020. As part of the initial agreement, Eldorado must pay $0.10 per share each month past the deadline. If the merger fails altogether, Eldorado will incur a penalty of $836.8m.

Who is VICI?

VICI Properties is a real estate investment trust owning 28 gaming properties comprising over 40 million square feet. Its properties are leased to Caesars and a number of other operators, including Penn National, Century Casinos, and Hard Rock International.  

In January, VICI received 75% of the fee for the sale of Harrah’s Reno in accordance with the company’s Master Lease agreement with Caesars. The deal saw an affiliate of CAI Investments purchase the casino property for $50m. Caesars will continue to operate the property until the end of this year.