Caesars Entertainment Corp. (CZR:US) is considering making a bid for Revel Casino Hotel, the Atlantic City, New Jersey, property that went through bankruptcy last year, according to people with knowledge of the situation.
A bid from Caesars isn’t certain, said the people, who asked not to be named because deliberations are private. Offers for the property, which opened in April 2012, are due in two weeks, and no negotiations are under way, they said.
Revel, built for $2.6 billion, would spruce up Caesars’ aging portfolio in Atlantic City, where it is the biggest player, with four properties. The company could use its loyalty program to steer existing customers to the resort, said Robert Heller, president of Spectrum Gaming Capital, a New York-based investment bank.
“They could fill the place,” Heller said in an interview. Revel would be “a huge upgrade” for Caesars in the market, he said.
Caesars says it has the largest customer database in the industry. Revel, owned by a group of hedge funds that assumed ownership after the bankruptcy last year, has struggled without a connection to a larger organization.
Hard Rock International, owned by Florida’s Seminole tribe, is among the companies interested in making an offer for Revel, the New York Post reported in December. Jill Chandler, a spokeswoman for Hard Rock at The Zimmerman Agency, declined to comment.
Lisa Johnson, a spokeswoman at Lisa Johnson Communications representing Revel, didn’t reply to an e-mail seeking comment.
Caesars rose 0.4 percent to $21.24 at 11:43 a.m. in New York. The shares have more than doubled in the past year.
Contracts protecting against Caesars default for five years increased 0.5 percentage point to 54.4 percent upfront as of 9:29 a.m., according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s in addition to 5 percent a year, meaning it would cost $5.44 million initially and $500,000 annually to protect $10 million of Caesars debt.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The contracts, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decline as investor confidence improves and rise as it deteriorates.
Caesars, based in Las Vegas, was purchased in a 2008 buyout led by Apollo Global Management LLC (APO:US) and TPG Capital. The company has been selling properties and stock as well as refinancing its debt (CZR:US), which exceeds $24 billion, according to data compiled by Bloomberg. It sold $1.17 billion of stock in a publicly-traded subsidiary, Caesars Acquisition Co. (CACQ:US), in November.
Caesars consists of four entities, including the Entertainment Operating Company, known as CEOC, the Acquisition Company, the Entertainment Resort Properties and Growth Partners, which was formed last year to provide funds for growth. Most of Caesars debt is held by CEOC.
“While both Growth Partners and CEOC entities have cash to make the acquisition, it makes more sense to acquire Revel from Growth Partners,” Chris Snow, a debt analyst at CreditSights Inc., said in a telephone interview. “CEOC is over-levered. Whether it buys Revel or not, it needs to restructure by the end of 2015.”
A purchase of Revel by Caesars might reshape New Jersey’s gambling industry should the company be forced to sell or close an existing property. Atlantic City has lost 43 percent of its revenue since 2006 as neighboring states expanded betting.
New Jersey regulations prohibit “undue economic concentration” by casino operators, according to the website of the state’s Division of Gaming Enforcement.
“The city is in the process of right-sizing and aligning supply with demand,” said Israel Posner, executive director of the Levenson Institute of Gaming, Hospitality and Tourism at Richard Stockton College of New Jersey in Atlantic City. “The division is known to be very careful and very judicious, and has a solid reputation for protecting not just the industry but the players as well.”
The casinos owned by the company -- Caesars, Harrah’s, Ballys and Showboat -- accounted for 41 percent of the Atlantic City gambling market in December, according to Bloomberg Industries research. Revel had 6.2 percent. The state began allowing casinos to offer gambling online in November.
Caesars is building a convention center in Atlantic City and in December purchased the property and fixtures of the Atlantic Club, which ceased operations this month.
The company might cut costs by consolidating its New Jersey operations, according to Matthew Landry, a consultant with Strategic Market Advisors in Somersworth, New Hampshire.
Caesars’ $2 billion of 11.25 percent notes due in 2017 fell 0.5 cent at 9:03 a.m. in New York, to 101.88 cents on the dollar to yield 10.56 percent, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
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