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8-K - 8-K - CAESARS HOLDINGS, INC. | d861391d8k.htm |
Exhibit 99.1
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Privileged & Confidential Subject to FRE 408 For Settlement Purposes Only
Response To Banks
January 2015
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Issues Overview
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
Issue Bank Position Response Explanation
Post-petition interestWant full interestWilling to increase to 1.5%+$200mm,This bridges 81% of the banks ask through confirmation date (270 days)
inclusive of cash sweep($260 vs $323mm cash)
$75mm paid upfront by CEC for forbearance
CEC Convert$ 290mm to banksAddressed aboveWe view this as an economic ask, not a credit ask
Strike$ 12.50Bank prior proposal indicates that cost to CEC is greater than credit given by
Maturity7 Years bank lenders
Rate5% cash or PIKCEC willing to replace with additional cash economics (see above)
CEC has already agreed to contribute $1.5bn cash + additional $200 for
$1.7bn total
Lease termsFixed for 15 yearDiscussWe would like to discuss your concerns around the PropCo securities
initial term you will receive
Banks PropCo 1L is levered 5.0x and financed 29% LTV
1L bonds, which are financing junior debt and equity, bear the risk of volatility
in PropCo and were thus the focus of our negotiations
Changes to this feature are very costly to CEC
We would prefer to understand in granularity the banks concerns and try to
solve them in a more efficient manner for all
Interest ratesOpCo 1L up 100 bpsNo changeWe cannot put the benefit of the deal with 1L bonds in jeopardy
PropCo 1L up 100 bpsThe deal with 1L bonds provides great value to the banks
Any increase in rates will:
1) Require the bonds approval
2) Dillute the value of the equity the bonds are receiving
3) Indirectly reduce the attractiveness of the deal to the non-1Ls, which we
understand is a concern of your group
This change cannot be made
Bank Recovery Under New Proposal
110
105 3.7 105.2
100.0 1.5
100
95
90
85
80
Base Recovery Current Cash Additional Cash Total Recovery
(1.5%)($200)
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Deal Misconceptions By Banks
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
Banks Position Comment
Current restructuring template provides substantial value to bank debt
Absent RSA and CEC contributions to this deal structure, treatment for banks would
RSA is bound to fail likely be worse. Degradation in treatment would undoubtedly trump whatever upside
anyway of continued fighting would bring given current offer
RSA wouldnt fail with bank support
With bank support, transaction will have substantial momentum and likelihood of
success
Milestones are too
aggressive (or not For the interest argument, weve heard the milestones are not aggressive enough
aggressive enough?) For the RSA is bound to fail anyway argument weve heard they are too aggressive
We want a deal with So do CEOC and CEC
the seconds Hard to not deal with this sequentially
We have been having discussions and we believe we can address their issues
We are covered Present versus future value
because we have a Determination of size of guarantee liability
guarantee Form of consideration
We submit that bank lenders would receive a higher recovery via a consensual deal than a long, drawn out non-consensual deal
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$200mm Additional Payment Bridges Most of the Banks Request
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
Disclosure Statement Confirmation
(150 days)(270 days)
Total Bank debt face value $5,405 $5,405
Current bank interest $182 $323
Current A/P proposal (1.5%) $34 $61
Proposed additional payment from CEC $200 $200
Total offer $234 $261
Offer as % of bank ask 128.5% 80.7%
($75 million paid upfront by CEC for forbearance)
An additional $200mm payment bridges most of the bank ask, and banks would be no worse off than status quo as the additional payment is conditioned on a confirmed plan.
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CEC Cash Contribution
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
CEC minimum cash contribution(1) $1,375
Plus: additional potential cash contribution $75
(if not enough cash at emergence)
Current CEC cash contribution $1,450
Plus: additional cash to banks $200
Revised CEC contribution $1,650
Includes CEC cash to CEOC balance sheet as well as CEC cash to buy equity from/provide liquidity to creditors
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This deal substantially improves bank credit quality
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
Bank and bonds (pari passu) are currently levered 11.4x
Proposed transaction de-levers banks to 4.5x OpCo, 5.0x PropCo 1L, and 6.3x Total. This is done through:
$1.5bn cash from CEC to support restructuring
Tranching of bank and bond obligations in new capital structure
CEC guarantee of lease to backstop value and credit quality
In total, banks receive $705mm of cash and $4.7bn of new debt
Of the $4.7bn of debt, $2.3bn is expected to be sold to market
Results in 56% cash and 44% debt recovery (best case) / 35% cash and 65% debt (worst case)
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Bank Recovery vs 1L Bond Recovery
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
1L Bonds
$6.3 bn
$5.7 bn (89%)(1)
Equity
$2.0 bn(31c)
$3.5bn (56c) of
junior securities
1L Debt
(11.4x) 2L Debt
$1.6 bn(25c)
1L Debt
$0.4 bn(7c)
Cash
$1.7 bn(26c)
Current PostRestructuring
Bank Debt
CPLV Debt Sold CPLV Mezz Debt Not Sold
$5.4 bn $5.4 bn (100%) $5.4 bn (100%) Mezz (2)
$0.4 bn 2L Debt $0.25 bn(5c)
(8c) $0.4 bn 2L Debt
(8c)
$2.0 bn 1L Debt 1L Debt
(36c) $2.0 bn(36c)
1L Debt
(11.4x)
$3.0 bn Cash Cash
(56c) $2.8 bn(52c)
Current PostRestructuring
In addition to a better overall recovery, bank lenders are getting significantly more cash and senior securities than 1L bondholders.
(1) Excludes $206mm forbearance fee or ~3% recovery (2) Bank can move up to $100mm to any other debt security
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Current Proposal vs Pro-rata
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
Current Proposal
$ 2.0 bn
$ 2.0 bn
$5.4 bn (100%) $5.7 bn (89%)(1)
$ 2.4 bn
$0.4 bn
$2.0 bn
$2.0 bn
$1.6 bn
$ 4.7 bn
$3.0 bn $0.4 bn
$1.7 bn
Bank Bonds Combined
Cash 1L debt 2L debt Equity
Same Treatment (Pro-Rata)
$ 2.0 bn
$ 2.0 bn
$5.7 bn (89%)
$4.8 bn (89%)
$1.1 bn $ 2.4 bn
$0.9 bn $1.1 bn
$0.9 bn
$1.3 bn
$1.1 bn $ 4.1 bn
$1.9 bn $2.2 bn
Bank Bonds Combined
Cash 1L debt 2L debt Equity
In a non-consensual deal, the bank and 1L bonds would be treated the same.
Difference to Banks
$% Recovery
Cash($1,152)($ 21.3%)
1L Debt($861)($ 15.9%)
2L Debt $501 9.3%
Equity $917 17.0%
Total($595)($ 11.0%)
(1) Excludes $206mm forbearance fee
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Bank Recovery Detail
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
Best Case
(all OpCo 1L / CPLV debt sold)
$5,405
PropCo $ 2.0bn
1L
OpCo 2L $ 0.4bn
Cash $ 3.0bn
Worst Case
(OpCo 1L and CPLV mezz debt not sold)
$5,405
Leverage LTV
PropCo $2.0bn 5.0x 39%
1L
OpCo 2L $0.4bn 4.5x 60%
OpCo 1L $0.9bn 3.1x 41%
CPLV Mezz $0.25bn ($250 of $600 Mezz)
($100mm Mezz can be moved at banks option)
Cash $1.9bn
Banks will receive at least $1.9bn (35%) and as much as $3.0bn (56%) in cash recovery. Additionally, the new debt securities banks receive will have a substantially lower leverage than the current 11.4x.
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Bank Recovery: Illustrative Debt Price Sensitivities
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
Sensivities: Change in Bank Recovery (%)
PropCo 1L Debt Price
100 99 98 97 96 95
% Change in Rec. -(0.4%)(0.7%)(1.1%)(1.5%)(1.8%)
Implied Leverage 5.0x 5.0x 4.9x 4.9x 4.8x 4.8x
OpCo 2L Debt Price
100 99 98 97 96 95 94 93 92 91 90
% Change in Rec. -(0.1%)(0.2%)(0.2%)(0.3%)(0.4%)(0.5%)(0.5%)(0.6%)(0.7%)(0.8%)
Implied Leverage 4.5x 4.4x 4.4x 4.4x 4.4x 4.4x 4.4x 4.4x 4.3x 4.3x 4.3x
CPLV Mezz Price
100 99 98 97 96 95 94 93 92 91 90
% Change in Rec. -(0.0%)(0.1%)(0.1%)(0.2%)(0.2%)(0.3%)(0.3%)(0.4%)(0.4%)(0.5%)
The trading price of the new debt has little impact on overall recoveries given the large cash recovery bank lenders are receiving
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Lease Structure Should Not Be A Concern To Banks
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
Volatility risk at PropCo matters more for equity than debt
PropCo 1L debt balance represents 29% PropCo LTV at plan value
As a result, we believed it was appropriate that the lease terms were negotiated with the holders of the PropCo equity, and any benefits would accrue to the debt
Although we recognize that the lease guarantee and terms are important points to the overall deal, we believe the importance of these points to the bank debt should be minimal
Completely fixed lease amount for 3 years and ~80% fixed through year 5
Minor annual resets thereafter
Given that changes to the lease have significant costs to OpCo and we believe that they do not materially impact the economics of the bank debt recovery, we have instead focused on delivering additional economics through an additional payment
PF Capital Structure OpCo
Bank Bonds Market Total Leverage
First lien debt 1,188 1,188 3.1x
Second lien debt 406 141 547 4.5x
CPLV debt -
Chester & Other 439 5.6x
Total 406 141 1,188 2,174 5.6x
Preferred
Equity 700 700
Implied TEV 406 841 1,188 2,874
PropCo
Bank Bonds Market Total Leverage
1,961 431 2,392 5.0x
1,425 1,425 8.0x
2,350 2,350 14.7x
-
1,961 1,856 2,350 6,167 9.7x
300 300
1,771 1,771
1,961 3,927 2,350 8,237
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Transaction dynamics with non-1L
Privileged & Confidential
Subject to FRE 408 For Settlement Purposes Only
We are strongly supportive of improved deal dynamics with the non-1L bondholders
We have had conversations with holders throughout this process and remain hopeful a consensual deal is possible
More importantly, we believe a deal with the bank debt will have the greatest impact on facilitating a deal with the non-1Ls
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