【破产新闻】Caesars: A Misunderstood Bankruptcy Reorg With 100%+ Upside

Summary

Investors appear to be underappreciative of Caesars’ growth playbook through sale-leaseback arbitrage transactions with VICI (REIT), while at the same time acquiring incremental properties and implementing property level improvements through Total Rewards.

Significant property ownership on the Strip and other high-quality regional casinos potentially provides $8-9.5bn in untapped cash through sale-leaseback transactions.

Recently completed buyback of ~ 3.3% of shares outstanding (not including converts), four recent insider buys - CEO purchased 100K shares after the sell-off.

An iconic franchise with an industry-leading casino platform business that has been unrecognized by investors due to complexity and structural impediments out of bankruptcy.

Quick Thesis:

Caesars is a special situation that we believe is substantially mispriced due to a complicated bankruptcy with its subsidiary, Caesars Entertainment Operating Company (CEOC), and the subsequent merger of CZR with Caesars Acquisition Corp (CACQ) and CEOC. The resulting structure (see below org. chart) is essentially an OpCo (CZR) and PropCo (VICI), with no cross-ownership between the two. This is a situation with non-fundamental selling pressure coming from the former creditors who are not natural long-term holders of the new entity (59.2% ownership upon exit). Furthermore, the complexity and recent exit from a litigious bankruptcy process likely have kept most investors on the sidelines until full year consolidated financials can be posted in early '19. Caesars is atypical in that we believe this is a high quality business that has emerged from bankruptcy with tremendous scale and many clear competitive advantages over its peers. We typically find most bankruptcy exits are companies with subpar assets and/or poor business models, but we believe the sole reason for Caesars bankruptcy was excessive leverage ($25.6bn total debt/~14x net leverage) from an aggressive TPG/Apollo LBO in 2006. While the market appears to be oblivious to the quality and scale of the Caesars assets, we project over the next 18 months, a significant re-rating is warranted. There is substantial embedded value (mostly center Strip) in Caesars owned real estate - so much so, we think if Caesars were to monetize just the owned real estate portfolio that the stock has 85-105% upside while giving no credit to other advantages within the Caesars franchise.

 

Source:https://seekingalpha.com/article/4203873-caesars-misunderstood-bankruptcy-reorg-100-percent-upside

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