00:00Fertitta Entertainment is paying Caesars shareholders $31 a share in cash, but in order to pay that cash, they're going
00:06to have to take out some debt.
00:08So, Jody, this is something that, you know, feels like it's a long time coming because Tillman Fertitta has been
00:14working on this for a while.
00:16Right, right. So, Scarlett, I mean, I think, you know, this has been rumored about since actually around the time
00:21of the Ides of March.
00:22I was super excited that the announcement would happen on the Ides of March, just for all the references with
00:27Caesars.
00:27Unfortunately, we had to wait another couple of months.
00:30That said, I think, you know, what's been so compelling about this story, and I think what sort of brings
00:34up a lot of uncomfortableness in the bond market is the history with the name.
00:39Now, mind you, the Caesars now is actually El Dorado that bought Caesars out of bankruptcy.
00:46And that's not the same Caesars that we're talking about that was the leverage buyout that went through the restructuring.
00:53And even so, I think a lot of bondholders, for good reason, are a little bit uncomfortable by this story
01:00in general.
01:02So, I've got a net debt to EBITDA, and I went through the Chase Manhattan Bank credit training program way
01:07back in the day.
01:08Nice, nice.
01:08I know how to do this.
01:08But I've got EBITDA of only like three points.
01:11I got north of six times on a leverage basis.
01:13Jody, people like you, you guys don't like that.
01:16No, no, we don't, Paul.
01:18And to make matters worse, the big question that we're grappling with is whether or not the change of control
01:24provision gets executed.
01:25Not to go into too much detail, but to make it as simple as possible, in the course of a
01:30transaction, there's some bond terms that allow bondholders to put the bonds back to the company.
01:37And so, in those instances, you get 101% of par, and that's not potentially happening here.
01:44We're not sure at the moment.
01:47And what we're seeing, though, is that if you look at the bonds, they're not trading like they would be
01:52put back at 101% of par.
01:54So, every indication we're seeing is that perhaps that's not going to get executed, which means that it's only, you
02:00know, about a $6 billion price tag in terms of borrowing, as opposed to an $18 billion price tag in
02:07terms of borrowing.
02:08So, that's a big nut to sort of grapple with is whether they have to refinance all that almost $12
02:14billion of debt or if they just have to issue new debt and lever up the balance sheet further and
02:20bondholders are along for the ride.
02:22Okay. So, any way you look at it, there's going to be a lot of moving parts here in order
02:27to get this deal done.
02:29Jody, you mentioned that there's some discomfort here for Caesars bondholders.
02:33Is this going to get in the way of there being enough demand?
02:36I mean, is this going to affect pricing and the concessions that might need to be made?
02:42I think, Scarlett, it really depends on timing.
02:45It depends on the communication.
02:47We've been really sort of surprised over and again by the appetite of bondholders and potential creditors out there.
02:56Now, will they have to pay up for it?
02:58It's very possible.
03:00And I think that that creates the sort of interesting component, too, is that if you're talking about a company
03:06that is already having issues from a profitability perspective, cash flow hasn't been where it wants to be.
03:12The management was focused up until ICON got involved last year.
03:16They were actually focused on deleveraging, but they weren't getting EBITDA up.
03:19So, they were bringing down debt and they were refinancing debt and they were improving the capital structure, but EBITDA
03:23wasn't budging.
03:24So, now we're in a scenario where we say, okay, we're going to lever up the company further from a
03:32net profit, a cash flow standpoint.
03:34What does that necessarily mean if, you know, they're going to be paying up on an interest basis?
03:39So, it's really a complicated conversation and I think it's one where nobody's going to be looking at this lighthearted
03:46when they're, when they, if and when the deal goes through and if and when they do issue debt.
03:51I think there's going to be a lot of people calling over many documents to decide if it makes sense
03:56for them.
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