Eldorado selling stock and Las Vegas land, on track for July merger with Caesars

Eldorado Resorts said it plans to issue new shares, sell some Las Vegas real estate and take other steps to strengthen its finances ahead of a $17 billion merger of Caesars Entertainment. Regulatory delays in Indiana have pushed back the merger date, at least until late July.

With earlier meetings canceled due to the COVID-19 pandemic, the Indiana Gaming Commission just said they have chosen July 10 as the date when the proposed merger will be considered. The deal currently can't close until the Indiana Gaming Commission, the gaming commissions of New Jersey and Nevada, and the Federal Trade Commission (FTC) all provide their approval.

Meanwhile, Eldorado is offering as many as 20.7 million shares of its stock, with the proceeds going to general corporate purposes, the company said last week. Vici Properties, a real estate investment trust spun off from Caesars, is providing a $400 million mortgage on a convention center Caesars opened in Las Vegas, and is purchasing 23 acres of land nearby for $4.5 million an acre, Bloomberg reports. The equity, combined with VICI’s transactions and an incremental expanded revolver credit facility, ensures an additional $1.3 billion of liquidity.

Eldorado also amended terms to a lease with Gaming and Leisure Properties Inc., which owns a number of casinos that it manages. Also, Eldorado and Caesars obtained waivers from banks to requirements that they maintain a certain level of debt to earnings.

The acquisition of Caesars, which was first announced in June of last year, will make Eldorado the largest operator of gambling establishments in the U.S. The Reno, Nevada-based company was already having to find new owners for several properties in markets where it feared regulators may have objected to its increased market share. The length of time required to win approvals in each of the states the company would operate in extended into the coronavirus pandemic, which shuttered virtually all of the casinos in the country.

Eldorado stock, which has a $3.1 billion market cap, is down more than 31% since January. Caesars Entertainment, which has a market value of $8.3 billion, has seen its shares tumble 11% year to date, as reported by CNBC. 

Eldorado and Caesars have obtained more flexibility from banks on key provisions in its debt documents that determine how much the company can borrow relative to its earnings. Companies in large swaths of the travel and entertainment industries have obtained similar concessions from lenders as their earnings plunged during the pandemic, avoiding a wave of defaults.

Despite state-mandated occupancy limits at its 14 reopened properties, Eldorado saw revenue decline only 21% year over year. But its earnings before interest, taxes, depreciation and amortization rose 16% compared with the same period last year. Those numbers are likely to improve since Missouri and Iowa, which reopened casinos on June 1, are stronger markets for Eldorado than Louisiana and Mississippi, which began opening in May. 

Furthermore, the two companies said they amended terms of their existing bank credit lines and new debt that a group of lenders led by JPMorgan Chase & Co. had agreed to provide for the merger, according to filings. The amendment on the new credit line means Eldorado won’t be required to comply with a covenant that limits the amount of its secured debt to 6.35 times earnings until September 2021, unless it opts to terminate the waiver sooner.

The bank group has also agreed to increase the credit lines they are providing to Eldorado and Caesars as part of the financing for the merger by a combined $210 million, according to the filings. Chief Executive Officer Tom Reeg originally predicted a close for the deal in the second quarter of this year, while a filing last Monday said it would be in mid-2020.