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Caesars turns to CMBS to fund exit from bankruptcy

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Caesars Entertainment Corp. is financing the exit of its main operating unit from Chapter 11 via the commercial mortgage bond market.

Caesars Entertainment Operating Corp. filed for bankruptcy in January 2015; in January 2017 the court approved a restructuring plan to shed $10 billion of debt and spin off the real property assets and golf course operations of CEOC and its subsidiaries into a newly formed entity, VICI Properties. VICI then leased the property back to CEOC.

In October, VICI obtained a $1.6 billion mortgage on its marquee Caesars Palace Las Vegas from four banks, JPMorgan Chase (43%), Barclays (30%), Goldman Sachs (13.5%) and Morgan Stanley (13.5%).

Proceeds from the loan, together with approximately $70.7 million of CEOC cash and an initial $650 million of mezzanine financing, were used to repay CEOC’s existing indebtedness, fund reserves, and pay loan closing costs.

The loan, which pays a fixed rate of 4.36% interest, and no principal, for its entire five-year term, is being securitized in a transaction dubbed Caesars Palace Las Vegas Trust 2017-VICI.

Ten classes of certificates will be issued, seven of which are entitled to principal and interest, two of which receive interest only and one of which is a residual interest to be retained by a third party not named in the presale report.

Kroll Bond Rating Agency and S&P Global Ratings each expect to assign an AAA to the senior tranches of notes to be issued.

Kroll considers the transaction to be "moderately" leveraged, based on a loan to value ratio of 78.7%. "While loans secured by traditional lodging collateral are not directly comparable to the subject, this transaction’s in-trust leverage compares favorably to the average in-trust KLTV of hotel loans securitized in the 16 conduits rated by KBRA over the past six months of 97.9%," the presale report states.

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CMBS Securitization Kroll Bond Rating Agency
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