Eldorado’s acquisition of Caesars Entertainment has been going pretty smooth ever since it was announced, with projections that it would take place sometime in 2020. However, this may become more difficult due to the appearance of the coronavirus, which is already affecting the market.
In fact, if the market doesn’t recover quickly, it would pose a serious problem for the merger.
Those financial institutions that already pledged to put up loans that go up to $7 billion might have trouble with attracting investors thanks to the unpopular virus. The virus is already affecting the financial market, and the Eldorado/Caesars merger could be one of its primary targets.
According to Bloomberg, several financial institutions already agreed to provide the necessary financing for the merger to take place. Some of these companies include JPMorgan Chase & Co., Credit Suisse Group AG, and Macquarie Group Ltd.
All of them agreed to this last June, not expecting anything similar to the coronavirus to take place the very next year.
The deal has never been closer to actually being finalized. All that is now important is to wait for approvals from regulatory bodies. Namely, regulators in every state where either Caesars of Eldorado have properties need to make an official approval for the merger to take place.
Therefore, there’s little time for banks to convince buyers of bonds and loans that this deal is highly leveraged and that it makes sense.
Coronavirus Taking Its Toll on the Stock Market
The coronavirus has already taken its toll in the stock market, which was halted temporarily a couple of days ago. This was done mainly to prevent a full-blown recession. However, the stock market aside, the entire gaming industry of the US, if not the world, is experiencing a serious hit because of the virus.
There is a possibility of federal relief, meaning there might be some stimulus incentives. However, many are afraid that those might come too late.
According to a senior investment analyst and portfolio managed at Federated Hermes, Gene Neavin, there’s a slight similarity between this situation and 9/11. Back then, people were overall very scared of taking a plane to travel.
However, this time, they are overall scared to travel and be in places of group meetings, such as casinos.
The funding which was proposed for the merger would include a total of $2.4 billion in loans that would be given to Caesars. Moreover, a total of $4.8 billion bonds and loans would go to Eldorado Resorts.
This is definitely a brave move, but the two companies are hoping to pull it off, as Eldorado also counts on the ability to reduce overhead by $500 million, which would significantly facilitate the merging process.
Eldorado’s shares dropped by 50% in less than two weeks, and this is all due to the fact that the entire hospitality industry is being affected by the coronavirus. At this moment, the deal is still on, meaning the two companies are not giving up on the idea to merge, despite the fact that there’s a financial threat around the corner.
Reeg still has a very positive attitude towards the merger. In fact, he told shareholders last month that they felt rather good about the execution and that they would “get in the credit markets.”
He was rather optimistic, claiming that the “deal is closing soon.” Both sides have put a lot of effort into making this deal happen, and, hopefully, the banks will have an understanding of it and not cause any issues along the way.
