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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Caesars Entertainment, Inc.    CZR

CAESARS ENTERTAINMENT, INC.

(CZR)
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CAESARS ENTERTAINMENT : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

11/09/2020 | 07:28am EST
You should read the following discussion together with the financial statements,
including the related notes and the other financial information, contained in
this Quarterly Report on Form 10-Q.
Caesars Entertainment, Inc., a Delaware corporation formerly known as Eldorado
Resorts, Inc. ("ERI" or "Eldorado"), is referred to as the "Company," "CEI,"
"Caesars," or the "Registrant," and together with its subsidiaries may also be
referred to as "we," "us" or "our."
Overview
We are a geographically diversified gaming and hospitality company that was
founded in 1973 by the Carano family with the opening of the Eldorado Hotel
Casino in Reno, Nevada. We partnered with MGM Resorts International to build
Silver Legacy Resort Casino in Reno, Nevada in 1993 and, beginning in 2005, we
grew through a series of acquisitions, including the acquisition of Eldorado
Shreveport in 2005, MTR Gaming Group, Inc. in 2014, Circus Circus Reno ("Circus
Reno") and the 50% membership interest in the Silver Legacy that was owned by
MGM Resorts International in 2015, Isle of Capri Casinos, Inc. ("Isle" or "Isle
of Capri") in 2017 and Grand Victoria Casino ("Elgin") and Tropicana
Entertainment, Inc. ("Tropicana") in 2018.
On July 20, 2020, we completed the merger with Caesars Entertainment Corporation
("Former Caesars") pursuant to which Former Caesars became our wholly-owned
subsidiary (the "Merger"). As a result of the Merger, we currently own, lease or
manage an aggregate of 56 domestic properties in 16 states with approximately
67,200 slot machines, video lottery terminals ("VLTs") and e-tables,
approximately 3,500 table games and approximately 48,800 hotel rooms as of
September 30, 2020. We also have international operations in five countries
outside of the U.S. In addition, we have other domestic and international
properties that are authorized to use the brands and marks of Caesars
Entertainment, Inc., as well as other non-gaming properties. Upon completion of
our previously announced sales, or expected sales, of certain gaming properties,
we expect that we will continue to own, lease or manage 51 properties. Our
primary source of revenue is generated by gaming operations, and we utilize our
hotels, restaurants, bars, entertainment, racing, sportsbook offerings, retail
shops and other services to attract customers to our properties.
In connection with the Merger, Caesars Entertainment Corporation changed its
name to "Caesars Holdings, Inc." and Eldorado Resorts, Inc. converted into a
Delaware corporation and changed its name to "Caesars Entertainment, Inc." In
addition, effective as of July 21, 2020 our ticker symbol on the NASDAQ Stock
Market changed from "ERI" to "CZR". In connection with the Merger, we also
entered into a Master Transaction Agreement (the "MTA") with VICI Properties
L.P., a Delaware limited partnership ("VICI"), pursuant to which, among other
things, we agreed to consummate certain sale and leaseback transactions and
amend certain lease agreements with VICI and/or its affiliates, with respect to
certain property described in the MTA.
As of September 30, 2020, we owned 23 of our casinos and leased 28 casinos in
the U.S. We have leases with GLP Capital, L.P., the operating partnership of
Gaming and Leisure Properties, Inc. ("GLPI"), including our Master Lease that we
entered into in connection with the Tropicana Acquisition on October 1, 2018 (as
amended, the "GLPI Master Lease") and our Lumiere lease. Six of the leased
casinos are subject to leases with GLPI, and we lease an additional 22 casinos
from other third parties, including VICI. See descriptions under the "GLPI
Master Lease" and "VICI Leases".
We periodically divest of assets in order to raise capital or as a result of a
determination that the assets are not core to our business. We also divested
certain assets, and are required to divest additional assets, in connection with
regulatory approvals related to closing of the Merger. A summary of recently
completed and planned divestitures of our properties as of September 30, 2020 is
as follows:
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           Segment                                     Property                                    Date Sold                        Location
Regional                             Presque Isle Downs & Casino ("Presque")                   January 11, 2019                   Pennsylvania
Regional                             Lady Luck Casino Nemacolin ("Nemacolin")                    March 8, 2019                    Pennsylvania
                                     Mountaineer Casino, Racetrack and Resort
Regional                             ("Mountaineer")                                           December 6, 2019                  West Virginia
Regional                             Isle Casino Cape Girardeau ("Cape Girardeau")             December 6, 2019                     Missouri
                                     Lady Luck Casino Caruthersville
Regional                             ("Caruthersville")                                        December 6, 2019                     Missouri
                                     Isle of Capri Casino Kansas City ("Kansas
Regional                             City")                                                    July 1, 2020 (a)                     Missouri
Regional                             Lady Luck Casino Vicksburg ("Vicksburg")                  July 1, 2020 (a)                   Mississippi
                                     Eldorado Resort Casino Shreveport ("Eldorado                   N/A (b)                        Louisiana
Regional                             Shreveport")
Regional                             MontBleu Casino Resort & Spa ("MontBleu")                      N/A (b)                          Nevada
Regional                             Tropicana Evansville ("Evansville")                            N/A (c)                         Indiana

Discontinued operations (d):
Regional                             Harrah's Reno                                          September 30, 2020 (e)                   Nevada
Regional                             Bally's Atlantic City                                          N/A (f)                        New Jersey
                                     Harrah's Louisiana Downs Casino, Racing &                      N/A (g)
Regional                             Entertainment ("Harrah's Louisiana Downs")                                                    Louisiana
Regional                             Caesars Southern Indiana                                       N/A (c)                         Indiana
Regional                             Horseshoe Hammond                                              N/A (c)                         Indiana
Managed, International, CIE          Emerald Resort & Casino                                          N/A                         South Africa
Managed, International, CIE          Caesars Entertainment UK                                         N/A                        United Kingdom


(a)We closed the sales of Kansas City and Vicksburg on July 1, 2020 and recorded
a gain of approximately $8 million during the quarter ended September 30, 2020.
(b)On April 24, 2020, we entered into a definitive purchase agreement with Twin
River Worldwide Holdings, Inc. ("Twin River") and certain of its affiliates for
the sale of the equity interests of Eldorado Resort Casino Shreveport Joint
Venture and Columbia Properties Tahoe, LLC, the entities that hold Eldorado
Shreveport and MontBleu for aggregate consideration of $155 million, subject to
a working capital adjustment. The definitive agreement provides that the
consummation of the sale is subject to satisfaction of customary conditions,
including receipt of required regulatory approvals and Eldorado Shreveport and
MontBleu are expected to close in the first quarter of 2021. Eldorado Shreveport
and MontBleu met the requirements for presentation as assets held for sale under
generally accepted accounting principles as of September 30, 2020. In
conjunction with the classification of MontBleu's operations as assets held for
sale as a result of the announced sale, an impairment charge totaling $45
million was recorded during the nine months ended September 30, 2020 due to the
carrying value exceeding the estimated net sales proceeds.
(c)In connection with its review of the Merger, the Indiana Gaming Commission
determined on July 16, 2020 that we are required to divest three properties
within the state of Indiana in order to avoid undue economic concentrations as
conditions to the Indiana Gaming Commission's approval of the Merger. On
October 27, 2020, the Company entered into an agreement to sell Evansville to
GLPI and Twin River for $480 million in cash, subject to a customary working
capital adjustment. The sale is subject to satisfaction of customary conditions,
including receipt of required regulatory approvals and is expected to close in
mid-2021. In addition, we plan to enter into agreements to divest of Caesars
Southern Indiana, and Horseshoe Hammond prior to December 31, 2020. Evansville
met the requirements for presentation as assets held for sale under generally
accepted accounting principles as of September 30, 2020. See (d) below for
Caesars Southern Indiana, and Horseshoe Hammond.
(d)These Former Caesars properties met, or are expected to meet within a short
period of time, held for sale criteria as of the acquisition date. The sales of
these properties have or are expected to close within one year from the date of
the closing of the Merger and the properties are classified as discontinued
operations.
(e)On September 30, 2020, we and VICI completed the sale of Harrah's Reno to an
affiliate of CAI Investments for $42 million, which proceeds were split between
us and VICI. We received approximately $8 million of net proceeds.
(f)On April 24, 2020, Former Caesars reached an agreement with VICI to sell
Bally'sAtlantic City Hotel & Casino to Twin River for approximately
$25 million. Caesars will receive approximately $6 million from the sale. In
addition, on October 9, 2020, we reached an agreement to sell the Bally's brand
to Twin River for $20 million, while retaining the right to use the brand within
Bally'sLas Vegas into perpetuity.
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(g)On September 3, 2020, we and VICI entered into agreement to sell Harrah's
Louisiana Downs with Rubico Acquisition Corp. for $22 million, subject to a
customary working capital adjustment, where the proceeds will be split between
us and VICI. The sale is subject to satisfaction of customary conditions,
including receipt of required regulatory approvals and is expected to close in
the first half of 2021.
Merger Related Activities
Merger with Caesars Entertainment Corporation
On July 20, 2020, the Merger was consummated and Former Caesars became a
wholly-owned subsidiary of ours. The strategic rationale for the Merger
includes, but is not limited to, the following:
•Creation of the largest owner, operator and manager of domestic gaming assets
•Diversification of the Company's domestic footprint
•Access to iconic brands, rewards programs and new gaming opportunities expected
to enhance customer experience
•Realization of significant identified synergies
Based on the closing price of $38.24 per share of the Company's common stock,
par value $0.00001 per share ("Company Common Stock"), reported on NASDAQ on
July 20, 2020, the aggregate implied value of the aggregate merger consideration
paid to former holders of Former Caesars common stock in connection with the
Merger was approximately $8.5 billion, including approximately $2.4 billion in
the Company Common Stock and approximately $6.1 billion in cash. The aggregate
merger consideration transferred also included approximately $2.4 billion
related to the repayment of certain outstanding debt balances of Former Caesars
and approximately $48 million of other consideration paid, which includes
$19 million related to a transaction success fee, for the benefit of Former
Caesars, and $29 million for the replacement of equity awards of certain
employees attributable to services provided prior to the Merger.
Pursuant to the Merger, each share of Former Caesars common stock was converted
into the right to receive, at the election of the holder thereof and subject to
proration, approximately $12.41 of cash consideration or approximately 0.3085
shares of Company Common Stock, with a value equal to approximately $12.41 in
cash (based on the volume weighted average price per share of Company Common
Stock for the 10 trading days ending on July 16, 2020). Following the
consummation of the Merger, stockholders of the Company and stockholders of
Former Caesars held approximately 61% and 39%, respectively, of the outstanding
shares of Company Common Stock.
We recognized acquisition-related transaction costs of $107 million and
$129 million for the three and nine months ended September 30, 2020,
respectively, and $13 million and $17 million for the three and nine months
ended September 30, 2019, respectively.
Partnerships and Acquisition Opportunities
William Hill
In September 2018, we entered into a 25-year agreement, which became effective
January 2019, with William Hill plc and William Hill U.S. Holdco, Inc. ("William
Hill US"), its U.S. subsidiary (together, "William Hill") pursuant to which we
(i) granted to William Hill the right to conduct betting activities, including
operating sportsbooks, in retail channels and under our first skin and third
skin for online channels with respect to our current and future properties
located in the United States and the territories and possessions of the United
States, including Puerto Rico and the U.S. Virgin Islands and (ii) agreed that
William Hill will have the right to conduct real money online gaming activities
utilizing our second skin available with respect to properties in such
territories. Pursuant to the terms of the agreement, we received a 20% ownership
interest in William Hill US valued at approximately $129 million as well as 13
million ordinary shares of William Hill plc with an initial value of
approximately $27 million upon closing of the transaction in January 2019. Our
profit and losses attributable to William Hill US are included in Transaction
costs and other operating costs on the Consolidated Condensed Statements of
Operations. We granted William Hill the right to the use of certain skins in
exchange for an equity method investment. The fair value of the William Hill US
and William Hill plc shares received has been deferred and is recognized as
revenue on a straight-line basis over the 25-year agreement term. The
amortization of deferred revenues associated with our equity interests is
included in other revenue within our Corporate and Other segment. Additionally,
we receive a profit share from the operations of betting and other gaming
activities associated with our properties.
On September 30, 2020, we announced that we had reached an agreement with
William Hill plc on the terms of a recommended cash acquisition pursuant to
which we would acquire the entire issued and to be issued share capital (other
than shares owned by us or held in treasury) of William Hill plc, in an all-cash
transaction of approximately £2.9 billion, or $3.7 billion. The transaction is
conditioned on, among other things, the approval of William Hill plc
shareholders and receipt of required regulatory approvals. To provide liquidity
to fund the cash purchase price for the proposed acquisition, we entered into
various
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financing transactions. On September 25, 2020, we borrowed $900 million under
the CEI Revolving Credit Facility (defined below), which was repaid subsequent
to September 30, 2020. On September 28, 2020, we deposited $2.1 billion, which
included borrowings under the CEI Revolving Credit Facility, into an escrow
account related to the William Hill offer. As of September 30, 2020, these funds
in escrow were classified as restricted cash until certain regulatory approvals
were received. In addition, on October 1, 2020, we raised an additional $1.9
billion through a public offering of Company Common Stock.
In connection with the proposed acquisition of William Hill plc, on September
29, 2020, the Company entered into a debt financing commitment letter pursuant
to which the lenders party thereto have committed to arrange and provide a newly
formed subsidiary of the Company with (a) a £1.0 billion senior secured 540-day
bridge loan facility, (b) a £116 million senior secured 540-day revolving credit
facility and (c) a £503 million senior secured 60-day bridge loan facility
(collectively, the "Debt Financing"). The proceeds of the Debt Financing will be
used (i) to pay a portion of the cash consideration for the proposed
acquisition, (ii) to refinance certain of William Hill plc's and its
subsidiaries' existing debt, (iii) to pay fees and expenses related to the
acquisition and related transactions and (iv) for working capital and general
corporate purposes.
In order to manage the risk of appreciation of the GBP denominated purchase
price the Company has entered into foreign exchange forward contracts.
In connection with the Debt Financing on October 6, 2020, our newly formed
subsidiary entered into a £1.5 billion Interim Facilities Agreement with
Deutsche Bank AG, London Branch and JPMorgan Chase Bank, N.A. to provide: (a) a
540-day £1.0 billion asset sale bridge facility and (b) a 60-day £503 million
cash confirmation bridge facility. Upon receipt of regulatory approvals, the
restriction on the $2.1 billion funded as of September 30, 2020 was released and
we transferred $1.4 billion of cash into our operating accounts and the
outstanding balance of the CEI Revolving Credit Facility was repaid in full.
Approximately $598 million of cash remains in an unrestricted account.
The Stars Group/Flutter Entertainment
In November 2018, we entered into a 20-year agreement with The Stars Group Inc.
("TSG") pursuant to which we agreed to provide TSG with options to obtain access
to our second skin for online sports wagering and third skin for real money
online gaming and poker, in each case with respect to our properties in the
United States. Under the terms of the agreement, we received 1 million TSG
common shares. The fair value of the shares received has been deferred and is
recognized as revenue on a straight-line basis over the 20-year agreement term.
All shares are subject to a one year restriction on transfer from the date they
are received. On May 5, 2020, Flutter Entertainment PLC ("Flutter") completed
the acquisition of all of the issued and outstanding common shares of TSG in
exchange for 0.2253 Flutter shares per common share of TSG. In addition, we will
receive a revenue share from the operation of the applicable verticals by TSG
under our licenses.
Reportable Segments
The following table sets forth certain information regarding our properties
(listed by segment in which each property is reported) as of September 30, 2020:
            Las Vegas                                             Regional                                            Managed, International, CIE
     (a) Bally's Las Vegas              Eldorado Resort Casino            (a) Harrah's Atlantic City                          International
                                        Reno
     (a) The Cromwell                   Silver Legacy Resort              (a) Harrah's Laughlin                           (a) Caesars Cairo
                                        Casino
     (a) Flamingo Las Vegas             Circus Circus Reno                (a) Harrah's New Orleans                        (a) Ramses Casino
     (a) The LINQ Hotel & Casino        MontBleu Casino Resort &          (a) Hoosier Park (f)                            (a) Emerald Casino Resort (b)
                                        Spa (c)
     (a) Paris Las Vegas                Tropicana Laughlin Hotel          (a) Indiana Grand (g)                           (a) Alea Glasgow (b)
                                        & Casino
     (a) Planet Hollywood Resort        Isle Casino Hotel -               (a) Bally's Atlantic City                       (a) Alea Nottingham (b)
         & Casino                       Blackhawk                           

(b)

(a) Caesars Palace Las Vegas Lady Luck Casino - Black (a) Caesars Atlantic City

                       (a) The Empire Casino (b)
                                        Hawk
     (a) Harrah's Las Vegas             Isle Casino Waterloo              (a) Caesars Southern                            (a) Manchester235 (b)
                                                                            

Indiana (e)(b)

     (a) Rio All-Suite Hotel &          Isle Casino Bettendorf            (a) Harrah's Council Bluffs                     (a) Playboy Club London (b)
         Casino
                                        Isle of Capri Casino              (a) Harrah's Gulf Coast                         (a) Rendezvous Brighton (b)
                                        Boonville
                                        Isle of Capri Casino              (a) Harrah's Joliet                             (a) Rendezvous Southend-on-Sea
                                        Kansas City (d)                                                                       (j)(b)
                                        Isle Casino Racing                (a) Harrah's Lake Tahoe                         (a) The Sportsman (b)
                                        Pompano Park


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                              Eldorado Resort Casino            (a) Harrah's Louisiana Downs              Managed
                              Shreveport (c)                        (h)(b)
                              Isle of Capri Casino              (a) Harrah's Metropolis               (a) Harrah's Ak-Chin
                              Hotel Lake Charles
                              Belle of Baton Rouge              (a) Harrah's North Kansas             (a) Harrah's Cherokee
                              Casino & Hotel                        City
                              Isle of Capri Casino Lula         (a) Harrah's Philadelphia             (a) Harrah's Cherokee Valley
                                                                                                          River
                              Lady Luck Casino                  (a) Harrah's Reno (i)(b)              (a) Harrah's Resort Southern
                              Vicksburg (d)                                                               California
                              Trop Casino Greenville            (a) Harveys Lake Tahoe                (a) Horseshoe Baltimore (k)
                              Eldorado Gaming Scioto            (a) Horseshoe Bossier City            (a) Caesars Windsor
                              Downs
                              Tropicana Casino and              (a) Horseshoe Council Bluffs          (a) Kings & Queens Casino
                              Resort, Atlantic City
                              Grand Victoria Casino             (a) Horseshoe Hammond (e)(b)          (a) Caesars Dubai
                              Lumière Place Casino              (a) Horseshoe Tunica                      CIE
                              Tropicana Evansville (e)                                                (a) Caesars Interactive
                                                                                                          Entertainment


___________________
(a)These properties were acquired from the Merger with Former Caesars on July
20, 2020.
(b)As a result of the Merger, the sales of these properties met the requirements
for presentation as discontinued operations as of September 30, 2020.
(c)In April 2020, the Company entered into an agreement to sell Eldorado
Shreveport and MontBleu, which are expected to close in the first quarter of
2021. As of September 30, 2020, the properties' assets and liabilities were
classified as held for sale.
(d)Kansas City and Vicksburg were sold on July 1, 2020.
(e)On October 27, 2020, the Company entered into an agreement to sell
Evansville, which is expected to close mid-2021. In addition, the Company plans
to enter into an agreement to divest of Caesars Southern Indiana, and Horseshoe
Hammond prior to December 31, 2020. As of September 30, 2020, Evansville's
assets and liabilities were classified as held for sale.
(f)Hoosier Park includes operations of our off-track betting locations, Winner's
Circle Indianapolis and Winner's Circle New Haven.
(g)Indiana Grand includes operations of our off-track betting location, Winner's
Circle Clarksville.
(h)On September 3, 2020, the Company entered into an agreement to sell Harrah's
Louisiana Downs, which is expected to close in the in the first half of 2021.
(i)Harrah's Reno was sold on September 30, 2020.
(j)Rendezvous Southend-on-Sea permanently closed in June 2020 following the
recent closure due to the COVID-19 public health emergency.
(k)As of September 30, 2020, Horseshoe Baltimore was 44.3% owned and held as an
equity-method investment.
The executive decision maker of the Company reviews operating results, assesses
performance and makes decisions on a "significant market" basis. Management
views each of our casinos as an operating segment. Operating segments are
aggregated based on their similar economic characteristics, types of customers,
types of services and products provided, and their management and reporting
structure. Prior to the Merger, our principal operating activities occurred in
five geographic regions and reportable segments: West, Midwest, South, East and
Central. Following the Merger, our principal operating activities occur in three
regionally-focused reportable segments. The reportable segments continue to be
based on the similar characteristics of the operating segments within the
regions in which they operate and align with the way management assesses these
results and allocates resources. The Company's reportable segments are: (1) Las
Vegas, (2) Regional, and (3) Managed, International, CIE, in addition to
Corporate and Other.
Presentation of Financial Information
The financial information included in this Item 2 for the period after our
acquisition of Former Caesars on July 20, 2020 is not fully comparable to the
periods prior to the acquisition. In addition, the presentation of financial
information herein for the periods after our sales of Presque and Nemacolin on
January 11, 2019 and March 8, 2019, respectively, our sales of Mountaineer, Cape
Girardeau and Caruthersville on December 6, 2019, and our sales of Kansas City
and Vicksburg on July 1, 2020 are not fully comparable to the periods prior to
their respective sale dates.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide information to assist in better
understanding and evaluating our financial condition and results of operations.
Our historical operating results may not be indicative of our future results of
operations because of these factors and the changing competitive landscape in
each of our markets, as well as by factors discussed elsewhere herein. We
recommend that you read this MD&A in conjunction with our unaudited consolidated
condensed financial statements and the notes to those statements included in
this Quarterly Report on Form 10-Q.
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Key Performance Metrics
Our primary source of revenue is generated by our gaming operations, but we use
our hotels, restaurants, bars, entertainment, retail shops, racing, sportsbook
offerings and other services to attract customers to our properties. Our
operating results are highly dependent on the volume and quality of customers
visiting and staying at our properties. Key performance metrics include volume
indicators such as table games drop and slot handle, which refer to amounts
wagered by our customers. The amount of volume we retain, which is not fully
controllable by us, is recognized as casino revenues and is referred to as our
win or hold.
Other Recent Developments and Significant Factors Impacting Financial Results
The following summary highlights recent developments and significant factors
impacting our financial results for the three and nine months ended
September 30, 2020 and 2019.
•COVID-19 Public Health Emergency - In January 2020, an outbreak of a new strain
of coronavirus ("COVID-19") was identified and has since spread throughout much
of the world, including the United States. All of our casino properties were
temporarily closed for the period from mid-March 2020 through mid-May 2020 due
to orders issued by various government agencies and tribal bodies as part of
certain precautionary measures intended to help slow the spread of the COVID-19
public health emergency. On May 15, 2020, we began reopening our properties and
have resumed certain operations at all of our properties as of September 30,
2020, with the exception of The Cromwell, Planet Hollywood Resort and Casino
("Planet Hollywood"), Rio All-Suite Hotel & Casino ("Rio"), and Caesars Windsor.
Planet Hollywood and Caesars Windsor reopened on October 8, 2020 and The
Cromwell reopened on October 29, 2020. The COVID-19 public health emergency has
had a material adverse effect on our business, financial condition and results
of operations for the three and nine months ended September 30, 2020. We
continued to pay our full-time employees through April 10, 2020, including tips
and tokens. Effective April 11, 2020, we furloughed approximately 90% of our
employees, implemented salary reductions and committed to continue to provide
benefits to our employees through September 30, 2020. Subsequently, the benefit
coverage for furloughed employees was extended indefinitely. A portion of our
workforce has returned to service as the properties have resumed with limited
capacities and in compliance with operating restrictions imposed by governmental
or tribal orders, directives, and guidelines. Due to the impact of the ongoing
COVID-19 public health emergency on our results of operations, we obtained
waivers on the financial covenants in our former credit facility agreement and
the GLPI Master Lease. Furthermore, we obtained waivers from VICI in relation to
annual capital expenditure requirements under the leases with VICI.
The extent of the ongoing and future effects of the COVID-19 public health
emergency on our business and the casino resort industry generally is uncertain,
but we expect that it will continue to have a significant impact on our
business, results of operations and financial condition. The extent and duration
of the impact of COVID-19 will ultimately depend on future developments,
including but not limited to, the duration and severity of the outbreak,
restrictions on operations imposed by governmental authorities, the potential
for authorities reimposing stay at home orders or additional restrictions in
response to continued developments with the COVID-19 public health emergency,
our ability to adapt to evolving operating procedures, the impact on consumer
demand and discretionary spending, the length of time it takes for demand to
return and our ability to adjust our cost structures for the duration of the
outbreak's effect on our operations.
•Caesars Acquisition - The Merger closed on July 20, 2020. Transaction costs
related to our acquisition of Former Caesars totaled $107 million and
$129 million for the three and nine months ended September 30, 2020,
respectively, and $13 million and $17 million for the three and nine months
ended September 30, 2019, respectively.
•Discontinued Operations - As result of the Merger, Former Caesars properties
including Harrah's Louisiana Downs, Caesars Southern Indiana, Horseshoe Hammond,
Harrah's Reno, Caesars UK group including Emerald Resort & Casino, and Bally'sAtlantic City have met, or are expected to meet within a short period of time,
held for sale criteria as of the date of the closing of the Merger. The sales of
these properties have or are expected to close within one year from the date of
the closing of the Merger and the properties are classified as discontinued
operations. Additionally, we closed the sale of Harrah's Reno on September 30,
2020.
•Proposed William Hill Acquisition - On September 30, 2020, we announced that we
had reached an agreement with William Hill plc on the terms of a recommended
cash acquisition pursuant to which we would acquire the entire issued and to be
issued share capital (other than shares owned by us or held in treasury) of
William Hill plc, in an all-cash transaction of approximately £2.9 billion, or
$3.7 billion. The transaction is conditioned on, among other things, the
approval of William Hill plc shareholders and receipt of required regulatory
approvals.
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•ESPN Agreement - On September 10, 2020, we entered into a multi-year agreement
with ESPN including link integrations from ESPN's website and app to sportsbooks
with our sports betting partner, William Hill.
•Divestitures - We closed the sales of Kansas City and Vicksburg on July 1, 2020
and recorded a gain of approximately $8 million during the quarter ended
September 30, 2020. We closed the sales of Presque and Nemacolin on January 11,
2019 and March 8, 2019, respectively, and recorded a net gain of $22 million. We
closed the sales of Mountaineer, Cape Girardeau and Caruthersville on December
6, 2019 and recorded a net gain of $29 million during the fourth quarter of
2019. The properties that have been sold are collectively referred to as the
"Divestitures." In conjunction with the classification of MontBleu's operations
as assets held for sale as a result of the announced sale, an impairment charge
totaling $45 million was recorded during the nine months ended September 30,
2020 due to the carrying value exceeding the estimated net sales proceeds. None
of the sales listed met requirements for presentation as discontinued operations
and are included in income from continuing operations for the periods prior to
their respective closing dates.
•Impairment Charges - As a result of declines in recent performance and the
expected impact on future cash flows as a result of COVID-19, we recognized
impairment charges in our Regional segment related to goodwill and trade names
totaling $100 million and $16 million, respectively, during the nine months
ended September 30, 2020.
•Weather and Construction Disruption - Our Regional segment was negatively
impacted by severe weather, including flooding, during the first quarter of 2019
compared to the same current year period. Additionally, our Regional segment was
negatively impacted by disruption to our casino floor and hotel availability
associated with renovation projects at our Black Hawk properties during the
construction period from January to June 2019. In late August 2020, our Regional
segment was negatively impacted by Hurricane Laura, causing severe damage to
Isle of Capri Casino Hotel Lake Charles ("Lake Charles"), which remains
temporarily closed. We recorded an insurance receivable of $31 million, of which
$15 million related to fixed asset impairments and $16 million related to
remediation costs and repairs that have been incurred in the three months ended
September 30, 2020.
Results of Operations
The following table highlights the results of our operations:
                                   Three Months Ended            Nine Months Ended
                                     September 30,                 September 30,
(Dollars in millions)               2020           2019         2020           2019
Net revenues:
Las Vegas                      $      304        $   -       $    304       $     -
Regional                            1,000          661          1,596         1,930
Managed, International, CIE            69            -             69             -
Corporate and Other (a)                 4            2              8             6
Total                          $    1,377$ 663$  1,977$ 1,936

Net (loss) income              $     (925)$  37$ (1,201)$    94

Adjusted EBITDA (b):
Las Vegas                      $       43        $   -       $     43       $     -
Regional                              331          205            439           569
Managed, International, CIE            18            -             18             -
Corporate and Other (a)               (41)          (8)           (59)          (27)
Total                          $      351$ 197$    441$   542

Net (loss) income margin (c)        (67.2)  %      5.6  %       (60.7) %        4.9  %
Adjusted EBITDA margin               25.5   %     29.7  %        22.3  %       28.0  %


___________________
(a)Corporate and Other includes revenues related to certain licensing revenue
and various revenue sharing agreements. Expenses incurred for corporate
activities that are directly attributable to a property or are otherwise
incurred to support a property are allocated to each property. The Other
category also includes corporate overhead costs, which consist of certain
expenses, such as: payroll, professional fees, travel expenses and other general
and administrative expenses that do not directly relate to or have not otherwise
been allocated to a property.
(b)See the "Supplemental Unaudited Presentation of Consolidated Earnings before
Interest, Taxes, Depreciation and Amortization ("EBITDA")" discussion later in
this MD&A for a definition of Adjusted EBITDA and a reconciliation of net (loss)
income to Adjusted EBITDA related margins.
                                       50
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(c)Net (loss) income margin is calculated as net (loss) income divided by net
revenues.
Consolidated comparison of the three and nine months ended September 30, 2020
and 2019
Net Revenues
Net revenues were as follows:
                                Three Months Ended                                                              Nine Months Ended
                                   September 30,                                        Percent                   September 30,                                      Percent
(Dollars in millions)          2020                 2019            Variance             Change               2020               2019            Variance             Change
Net Revenues:
Casino and pari-mutuel
commissions             $       919$  458$     461                100.7  %       $    1,360$ 1,386$     (26)                (1.9) %
Food and beverage               125                   78                 47                 60.3  %              188              229                (41)               (17.9) %
Hotel                           200                   94                106                112.8  %              257              237                 20                  8.4  %
Other                           133                   33                100                       *              172               84                 88                104.8  %
Net Revenues            $     1,377$  663$     714                107.7  %       $    1,977$ 1,936$      41                  2.1  %

___________________

*  Not meaningful.
Consolidated revenues increased for the three and nine months ended
September 30, 2020 as a result of our acquisition of Former Caesars on July 20,
2020. This was offset by a decline in revenues associated with the COVID-19
public health emergency and, to a lesser extent, divestitures of certain
properties discussed earlier. Both we and Former Caesars began temporarily
closing our properties from mid-March 2020. We began reopening our properties on
May 15, 2020. Former Caesars began opening properties on May 18, 2020. As of
September 30, 2020, all but The Cromwell, Planet Hollywood, Rio and Caesars
Windsor were reopened. Due to the impact of the COVID-19 public health
emergency, including local and state regulations and the implementation of
social distancing and health and safety protocols, our properties are subject to
reduced gaming capacity and hotel occupancy, limited operation of food and
beverage outlets, live entertainment events and group business. As a result,
gaming revenue represents a larger portion of our total revenues following the
reopening of our properties as compared to earlier periods, which we expect to
continue until at least such time that social distancing and safety and health
protocols, along with governmental capacity or other restrictions, are relaxed
or no longer necessary.
Our diversified portfolio has yielded mixed results as the properties have
reopened under the conditions noted above. Net revenues for properties which
have historically relied on a local customer base, not dependent on air travel
or convention business, showed a smaller decrease as compared to the three
months ended September 30, 2019 results. These properties' gaming and hotel
revenues have historically been the largest portion of their total revenue.
Properties in destination markets such as Las Vegas, Atlantic City, Northern
Nevada and New Orleans, which have historically relied on a broader regional and
national customer base or convention business have declined significantly from
the prior year period. These properties have historically relied on a broader
mix of revenue sources including convention, entertainment, and food and
beverage offerings. As a result of reduced visitation, state and local
restrictions on capacity, and social distancing and safety and health protocols,
these sources of revenue have been materially reduced as compared to prior
periods.
Operating Expenses
Operating expenses were as follows:
                                       51
--------------------------------------------------------------------------------
                                   Three Months Ended                                                              Nine Months Ended
                                      September 30,                                        Percent                   September 30,                                      Percent
(Dollars in millions)             2020                 2019            Variance             Change               2020               2019            Variance             Change
Operating Expenses:
Casino and pari-mutuel
commissions                $       461$  229$     232                101.3  %              685              693          $      (8)                (1.2) %
Food and beverage                   91                   60                 31                 51.7  %              153              180                (27)               (15.0) %
Hotel                               63                   27                 36                133.3  %               91               76                 15                 19.7  %
Other                               52                   12                 40                       *               62               34                 28                 82.4  %

General and administrative         330                  130                200                153.8  %              495              381                114                 29.9  %

Corporate                           90                   13                 77                       *              120               51                 69                135.3  %
Impairment charges                   -                    -                  -                       *              161                1                160                       *
Depreciation and
amortization                       223                   53                170                       *              322              167                155                 92.8  %
Transaction costs and
other operating costs              219                   14                205                       *              242                2                240                       *
Total operating expenses   $     1,529$  538$     991                184.2  %       $    2,331$ 1,585$     754                 47.6  %


___________________
*  Not meaningful.
Casino and pari-mutuel expenses consist primarily of salaries and wages
associated with our gaming operations, marketing and promotions and gaming
taxes. Hotel expenses consist principally of salaries, wages and supplies
associated with our hotel operations. Food and beverage expenses consist
principally of salaries and wages and costs of goods sold associated with our
food and beverage operations. Other expenses consist principally of salaries and
wages and costs of goods sold associated with our retail, entertainment and
other operations.
Casino and pari-mutuel, hotel, food and beverage, and other expenses for the
three and nine months ended September 30, 2020 increased year over year as a
result of our acquisition of Former Caesars. This was offset as a result of the
temporary closures of all of our properties due to the COVID-19 public health
emergency, which reduced our salaries and wages, gaming taxes, costs of goods
sold, and other expenses. As discussed above, our reopened properties are
operating with reduced gaming and hotel capacity and limited food and beverage
options. As such, our properties are operating with a reduced workforce, which
resulted in decreased salaries and wages. In addition, our properties have
reduced marketing and promotional spend, resulting in further declines in gaming
expenses.
General and administrative expenses include items such as compliance, facility
maintenance, utilities, property and liability insurance, expenses for
administrative departments such as accounting, purchasing, human resources,
legal and internal audit, and property taxes. Property, general and
administrative expenses also include stock-based compensation expense for
certain property executives, sports sponsorships and other marketing expenses
not directly related to our gaming operations.
General and administrative expenses for the three and nine months ended
September 30, 2020 increased year over year as the result of our acquisition of
Former Caesars. This was offset by actions taken to reduce our cost structure
while our properties were temporarily closed and during the period of reduced
operations due to the impact of the COVID-19 public health emergency, which are
discussed above and implemented.
For the three and nine months ended September 30, 2020 compared to the same
prior year period, corporate expenses increased primarily due to the acquisition
of Former Caesars offset by reductions in salaries and wages due to reductions
in workforce implemented as a result of the impact of the COVID-19 public health
emergency.
For the three and nine months ended September 30, 2020 compared to the same
prior year period, depreciation and amortization expense increased mainly due to
the acquisition of Former Caesars offset by ceasing depreciation and
amortization expense on assets held for sale and the Divestitures.
For the three and nine months ended September 30, 2020 compared to the same
prior year period, transaction costs and other operating costs increased
primarily due to costs or fees incurred related to the Merger, various project
exit fees and related write offs, and higher severance expense related to
synergies with the Merger.


                                       52
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Other income (expenses)
Other income (expenses) were as follows:
                                     Three Months Ended                                                             Nine Months Ended
                                       September 30,                                      Percent                     September 30,                                        Percent
(Dollars in millions)               2020              2019            Variance             Change                 2020                2019       
    Variance             Change
Other income (expenses)
Interest expense, net          $      (473)$  (72)$    (401)                      *       $     (608)$ (217)$    (391)               (180.2) %
Loss on extinguishment of debt        (173)             (1)              (172)                      *             (173)                 (1)              (172)                       *

Other (loss) income                      9               3                  6                200.0  %               (1)                  -                 (1)                       *
Provision for income taxes            (135)            (18)              (117)                      *              (64)                (39)               (25)                (64.1) %


___________________
*  Not meaningful.
For the three and nine months ended September 30, 2020, interest expense, net
increased year over year as a result of our acquisition of Former Caesars.
Outstanding debt assumed, additional debt raised, and assumed financing
obligations resulted in the increase in interest expense.
For the three and nine months ended September 30, 2020, the loss on
extinguishment of debt increased year over year due to the payment of
outstanding debt as a result of our acquisition of Former Caesars.
Segment comparison of the three and nine months ended September 30, 2020 and
2019
Las Vegas Segment
                               Three Months Ended                                                              Nine Months Ended
                                  September 30,                                      Percent                     September 30,                                        Percent
(Dollars in millions)         2020               2019            Variance            Change                2020                   2019            Variance            Change
Revenues:
Casino and pari-mutuel
commissions              $       122           $    -          $     122                      *       $      122                $    -          $     122                      *
Food and beverage                 52                -                 52                      *               52                     -                 52                      *
Hotel                             79                -                 79                      *               79                     -                 79                      *
Other                             51                -                 51                      *               51                     -                 51                      *
Net Revenues             $       304           $    -          $     304                      *       $      304                $    -          $     304                      *

Adjusted EBITDA          $        43           $    -          $      43                      *       $       43                $    -          $      43                      *
Adjusted EBITDA margin          14.1   %            -  %                               14.1 pts             14.1   %                 -  %                               14.1 pts

Net loss attributable to
Caesars                  $      (162)          $    -          $    (162)                     *       $     (162)               $    -          $    (162)                     *


___________________
*  Not meaningful.
Las Vegas segment's net revenues and Adjusted EBITDA increased as a result of
the acquisition of Former Caesars. As of September 30, 2020, all of our Las
Vegas properties other than The Cromwell, Planet Hollywood and Rio were
reopened. Planet Hollywood opened on October 8, 2020 and The Cromwell reopened
on October 29, 2020. All of our properties within the Las Vegas segment reopened
with reduced gaming and hotel capacity and with limited food and beverage
offerings. As of September 30, 2020, entertainment and convention venues have
not reopened due to capacity limitations.
During the third quarter of 2020 or in the period between properties reopening
and September 30, 2020, all of our reopened properties in the Las Vegas segment
experienced a significant decline in net revenues and Adjusted EBITDA compared
to Former Caesars' prior year results for the same properties due to the general
weakness in the economic environment resulting from reduced visitation and
travel to Las Vegas resulting from the COVID-19 public health emergency.
Adjusted EBITDA margins for our Las Vegas properties were negatively impacted by
greater declines in revenue than our Regional segment as well as rent expense
associated with our Rio lease in our Las Vegas segment.
                                       53
--------------------------------------------------------------------------------
Regional Segment
                               Three Months Ended                                                          Nine Months Ended
                                 September 30,                                      Percent                  September 30,                                      Percent
(Dollars in millions)         2020              2019            Variance             Change              2020              2019            Variance             Change
Revenues:
Casino and pari-mutuel
commissions              $      774$  458$     316                 69.0  %       $  1,215$ 1,386$    (171)                (12.3) %
Food and beverage                72               78                 (6)                (7.7) %            135              229                (94)                (41.0) %
Hotel                           121               94                 27                 28.7  %            178              237                (59)                (24.9) %
Other                            33               31                  2                  6.5  %             68               78                (10)                (12.8) %
Net Revenues             $    1,000$  661$     339                 51.3  %       $  1,596$ 1,930$    (334)                (17.3) %

Adjusted EBITDA          $      331$  205$     126                 61.5  %       $    439$   569$    (130)                (22.8) %
Adjusted EBITDA margin         33.1   %         31.0  %                                 2.1 pts           27.5  %          29.5  %                                  (2) pts

Net (loss) income
attributable to Caesars  $       47$  117$     (70)               (59.8) %       $   (175)             300          $    (475)               (158.3) %


Regional segment's net revenues, Adjusted EBITDA and margin increased for the
three months ended September 30, 2020 compared to the same prior year period as
a result of the acquisition of Former Caesars. All of our properties in our
Regional segment have reopened as of September 30, 2020. All of our properties
within the Regional segment reopened with reduced gaming and hotel capacity and
with limited food and beverage offerings.
During the third quarter of 2020 or in the period between properties reopening
and September 30, 2020, our Regional properties experienced a decline in net
revenues as compared to the prior year. However, in the period between reopening
and September 30, 2020 for all of our Regional properties other than Atlantic
City, Northern Nevada and New Orleans. Adjusted EBITDA grew as compared to prior
year, and Former Caesars' prior year, for the same properties. Adjusted EBITDA
margin for these properties were higher as compared to prior year due to
operating with a reduced workforce, reducing marketing costs, and limiting
certain lower margin food and beverage offerings such as buffets.
Properties in Atlantic City, Northern Nevada and New Orleans experienced
significant declines in net revenues and Adjusted EBITDA as compared to prior
year and Former Caesars' prior year for the same properties as they were all
negatively impacted by reduced visitation and limitations on capacity due to the
COVID-19 public health emergency.
Managed, International & CIE Segment
                              Three Months Ended                                                       Nine Months Ended
                                September 30,                                    Percent                 September 30,                                    Percent
(Dollars in millions)        2020             2019           Variance            Change               2020             2019           Variance         
  Change
Revenues:
Casino and pari-mutuel
commissions              $     23           $    -          $     23                      *       $     23           $    -          $     23                      *
Food and beverage               1                -                 1                      *              1                -                 1                      *
Hotel                           -                -                 -                      *              -                -                 -                      *
Other                          45                -                45                      *             45                -                45                      *
Net Revenues             $     69           $    -          $     69                      *       $     69           $    -          $     69                      *

Adjusted EBITDA          $     18           $    -          $     18                      *       $     18           $    -          $     18                      *
Adjusted EBITDA margin       26.1   %            -  %                              26.1 pts           26.1   %            -  %                          

26.1 pts


Net income attributable
to Caesars               $      3           $    -          $      3                      *       $      3           $    -          $      3                      *


___________________
*  Not meaningful.
Managed, International, CIE segment's net revenues and Adjusted EBITDA increased
as a result of the acquisition of Former Caesars. All of our managed properties
have reopened as of September 30, 2020 except for Caesars Windsor, which opened
on October 8, 2020. Our CIE business was not closed at any point related to the
COVID-19 public health emergency.
                                       54
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For the three and nine months ended September 30, 2020, net revenues for
Managed, International and CIE declined as compared to Former Caesars' prior
period related to reimbursed management costs related to Caesars Windsor
remaining closed throughout the quarter. Excluding that, net revenues increased
primarily related to increased revenue in our CIE business. Adjusted EBITDA for
Managed, International and CIE increased as compared to Former Caesars' prior
period.
Corporate & Other
                                    Three Months Ended                                                          Nine Months Ended
                                       September 30,                                     Percent                  September 30,                                      Percent
(Dollars in millions)              2020              2019            Variance             Change               2020             2019            Variance             Change
Revenues:

Other                          $        4$    2$       2                100.0  %       $       8$    6$       2                  33.3  %
Net Revenues                   $        4$    2$       2                100.0  %       $       8$    6$       2                  33.3  %

Adjusted EBITDA                $      (41)$   (8)$     (33)                      *       $     (59)$  (27)$     (32)               (118.5) %


___________________
*  Not meaningful.

Supplemental Unaudited Presentation of Consolidated Earnings before Interest,
Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA for the
Three and Nine Months Ended September 30, 2020 and 2019
Adjusted EBITDA (defined below), a non-GAAP financial measure, has been
presented as a supplemental disclosure because it is a widely used measure of
performance and basis for valuation of companies in our industry and we believe
that this non-GAAP supplemental information will be helpful in understanding our
ongoing operating results. Management has historically used Adjusted EBITDA when
evaluating operating performance because we believe that the inclusion or
exclusion of certain recurring and non-recurring items is necessary to provide a
full understanding of our core operating results and as a means to evaluate
period-to-period results. Adjusted EBITDA represents net income (loss) before
interest expense, (benefit) provision for income taxes, unrealized (gain) loss
on investments and marketable securities, depreciation and amortization,
stock-based compensation, impairment charges, transaction expenses, severance
expense, selling costs associated with the divestitures of properties, equity in
income (loss) of unconsolidated affiliates, (gain) loss on the sale or disposal
of property and equipment, (gain) loss related to divestitures, changes in the
fair value of certain derivatives and certain non-recurring expenses such as
sign-on and retention bonuses, business optimization expenses and transformation
expenses, litigation awards and settlements, losses on inventory associated with
properties temporarily closed as a result of the COVID-19 public health
emergency, contract exit or termination costs, and regulatory settlements.
Adjusted EBITDA also excludes the expense associated with certain of our leases
as these transactions were accounted for as financing obligations and the
associated expense is included in interest expense. Adjusted EBITDA is not a
measure of performance or liquidity calculated in accordance with GAAP, is
unaudited and should not be considered an alternative to, or more meaningful
than, net income (loss) as an indicator of our operating performance. Uses of
cash flows that are not reflected in Adjusted EBITDA include capital
expenditures, interest payments, income taxes, debt principal repayments,
payments under our leases with affiliates of GLPI and VICI Properties Inc. and
certain regulatory gaming assessments, which can be significant. As a result,
Adjusted EBITDA should not be considered as a measure of our liquidity. Other
companies that provide EBITDA information may calculate Adjusted EBITDA
differently than we do. The definition of Adjusted EBITDA may not be the same as
the definitions used in any of our debt agreements.
The following table summarizes our Adjusted EBITDA for our operating segments
for the three and nine months ended September 30, 2020 and 2019, respectively,
in addition to reconciling net (loss) income to Adjusted EBITDA in accordance
with US GAAP (unaudited):
                                       55
--------------------------------------------------------------------------------

                                                                Three 

Months Ended September 30, 2020

                                                                 Add: Disc. Ops         Pre-Acq. CEC
(In millions)                                    CEI                  (d)                   (e)               Total (f)
Net (loss) income attributable to Caesars   $     (926)         $           -          $      (173)$   (1,099)
Net income (loss) attributable to
noncontrolling interests                             1                      -                  (62)                (61)
Net loss from discontinued operations                1                      2                    -                   3
Interest expense, net                              473                     26                   72                 571
Provision (benefit) for income taxes               135                      4                  (51)                 88
Other loss (a)                                     164                      -                   67                 231
Impairment charges                                   -                      -                  124                 124
Depreciation and amortization                      223                      2                   53                 278
Stock-based compensation                            45                      1                    3                  49
Transaction costs and other operating costs
(b)                                                219                      3                   22                 244
Other items (c)                                     16                      -                   19                  35
Adjusted EBITDA                             $      351          $          38          $        74$      463



                                                                 Three

Months Ended September 30, 2019

                                                                Less: Divestitures        Pre-Acq. CEC
(In millions)                                    CEI                   (g)                    (e)               Total (h)

Net income (loss) attributable to Caesars $ 37 $

  14          $      (359)$     (336)
Net loss attributable to noncontrolling
interests                                            -                        -                   (1)                 (1)
Provision (benefit) for income taxes                18                        5                  (22)                 (9)
Other income (a)                                    (2)                       -                  (27)                (29)
Interest expense, net                               72                        1                  341                 412
Depreciation and amortization                       53                        1                  255                 307
Impairment charges                                   -                        -                  380                 380
Transaction costs and other operating costs
(b)                                                 14                        -                   33                  47
Stock-based compensation expense                     4                        -                   19                  23
Other items (c)                                      1                        1                   16                  16
Adjusted EBITDA                             $      197          $            22          $       635$      810



                                                               Nine Months Ended September 30, 2020
                                                                 Less: Divest.
                                                                  Add: Disc.         Pre-Acq. CEC
(In millions)                                    CEI              Ops (d) (g)             (e)              Total (i)
Net loss attributable to Caesars            $    (1,202)$      (11)$   (1,059)$   (2,250)
Net income (loss) attributable to
noncontrolling interests                              1                   -                 (67)                (66)
Net loss (income) from discontinued
operations                                            1                  (2)                  -                   3
Interest expense, net                               608                 (23)                750               1,381
Provision (benefit) for income taxes                 64                  (4)               (224)               (156)
Other loss (income) (a)                             174                   -                 (45)                129
Impairment charges                                  161                   -                 189                 350
Depreciation and amortization                       322                   -                 559                 881
Stock-based compensation                             55                  (1)                 26                  82
Transaction costs and other operating costs
(b)                                                 242                  (1)                 71                 314
Other items (c)                                      15                   1                  54                  68
Adjusted EBITDA                             $       441$      (41)$      254$      736


                                       56
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                                                                 Nine 

Months Ended September 30, 2019

                                                                Less: Divestitures        Pre-Acq. CEC
(In millions)                                    CEI                   (g)                    (e)               Total (h)

Net income (loss) attributable to Caesars $ 94 $

  33          $      (891)$     (830)
Net loss attributable to noncontrolling
interests                                            -                        -                   (2)                 (2)
Provision (benefit) for income taxes                39                       11                 (111)                (83)
Other loss (a)                                       1                        -                  412                 413
Interest expense, net                              217                        2                1,033               1,248
Depreciation and amortization                      167                       13                  743                 897
Impairment charges                                   1                        -                  430                 431
Transaction costs and other operating costs
(b)                                                  2                        -                   86                  88
Stock-based compensation expense                    16                        -                   62                  78
Other items (c)                                      5                        1                      66               70
Adjusted EBITDA                             $      542          $            60          $     1,828$    2,310


____________________
(a)Other loss (income) for the three and nine months ended September 30, 2020
primarily represent loss on early repayment of debt in connection with the
consummation of the Merger and unrealized loss on the change in fair value of
the derivative liability related to CEC's 5% convertible notes, slightly offset
by gain on William Hill UK and Flutter stock and realized gain on conversion of
CEC's 5% convertible notes. Other loss (income) for the three and nine months
ended September 30, 2019 primarily represent unrealized loss on the change in
fair value of the derivative liability related to CEC's 5% convertible notes.
(b)Transaction costs and other operating costs for the three and nine months
ended September 30, 2020 primarily represent costs related to the Merger with
Former Caesars, various contract or license termination exit costs, and
severance costs.
(c)Other represents internal labor charges related to certain departed
executives and contract labor.
(d)Discontinued operations include Horseshoe Hammond, Caesars Southern Indiana,
Harrah's Louisiana Downs, Caesars UK group including Emerald Resorts & Casino,
and Bally'sAtlantic City.
(e)Pre-acquisition CEC represents results of operations for Former Caesars for
the period from July 1, 2020 and January 1, 2020 to July 20, 2020, the date on
which the Merger was consummated, for the three and nine months ended September
30, 2020, respectively, and for the three and nine months ended September 30,
2019. Additionally, certain corporate overhead costs which were historically
charged to properties within the segments have been reclassified to the
Corporate and Other. These costs primarily include centralized marketing
expenses, redundant executive and management payroll and benefits expenses,
centralized contract labor expenses, and corporate rent expenses. Such figures
are based on unaudited internal financial statements and have not been reviewed
by the Company's auditors and, for the 2020 periods, do not conform to GAAP.
(f)2020 Total for the three months ended September 30, 2020 includes results of
operations from discontinued operations and from Former Caesars prior to July
20, 2020, the date on which the Merger was consummated. Such presentation does
not conform to GAAP or the Securities and Exchange Commission rules for pro
forma presentation; however, we believe that the additional financial
information will be helpful to investors in comparing current results with
results of prior periods. This is non-GAAP data and should not be considered a
substitute for data prepared in accordance with GAAP, but should be viewed in
addition to the results of operations reported by the Company.
(g)Divestitures for the three and nine months ended September 30, 2019 include
results of operations for Mountaineer, Cape Girardeau, Caruthersville, Kansas
City, and Vicksburg for the three and nine months ended September 30, 2019.
Divestitures for the nine months ended September 30, 2020 include results of
operations for Kansas City and Vicksburg for the period beginning January 1,
2020 to July 1, 2020. Such figures are based on unaudited internal financial
statements and have not been reviewed by the Company's auditors and do not
conform to GAAP.
(h)2019 Total for the three and nine months ended September 30, 2019 excludes
results of operations from divestitures as detailed in (g) and includes results
of operations of Former Caesars, including discontinued operations, for the
relevant period. Such presentation does not conform to GAAP or the Securities
and Exchange Commission rules for pro forma presentation; however, we believe
that the additional financial information will be helpful to investors in
comparing current results with results of prior periods. This is non-GAAP data
and should not be considered a substitute for data prepared in accordance with
GAAP, but should be viewed in addition to our reported results of operations.
(i)2020 Total for the nine months ended September 30, 2020 excludes divestitures
as detailed in (g) and includes results of operations from discontinued
operations and from Former Caesars prior to July 20, 2020, the date on which the
Merger was consummated. Such presentation does not conform to GAAP or the
Securities and Exchange Commission rules for pro forma presentation; however, we
believe that the additional financial information will be helpful to investors
in comparing current results with results of prior periods. This is non-GAAP
data and should not be considered a substitute for data prepared in accordance
with GAAP, but should be viewed in addition to our reported results of
operations.

Liquidity and Capital Resources
We are a holding company and our only significant assets are ownership interests
in our subsidiaries. Our ability to fund our obligations depends on existing
cash on hand, contracted asset sales, cash flow from our subsidiaries and our
ability to raise capital. Our primary sources of liquidity and capital resources
have been existing cash on hand, cash flow from operations, borrowings under our
revolving credit facilities, proceeds from the issuance of debt and equity
securities and proceeds from completed asset sales and lease transactions.
Our cash requirements fluctuate significantly depending on our decisions with
respect to business acquisitions or divestitures and strategic capital
investments to maintain the quality of our properties. Beginning on May 18,
2020, we began reopening our properties and as of September 30, 2020 we have
resumed operations at all of our properties, with the exception of The
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Cromwell, Planet Hollywood, Rio, and Caesars Windsor. Planet Hollywood and
Caesars Windsor reopened on October 8, 2020 and The Cromwell reopened on October
29, 2020. In an effort to mitigate the impacts of COVID-19 public health
emergency on our business and maintain liquidity, we furloughed approximately
90% of our employees beginning on April 11, 2020. A portion of the workforce has
returned to service as the properties have resumed with limited capacities and
in compliance with operating restrictions in accordance with governmental
orders, directives and guidelines. As a result of these payroll changes combined
with other cost saving measures, our operating expenses were reduced
significantly.
In an effort to maintain liquidity and provide financial flexibility as the
effects of COVID-19 public health emergency continue to evolve and impact global
financial markets, we borrowed $465 million under our revolving credit facility
on March 16, 2020, which we repaid utilizing, in part, proceeds from the sale of
our interests in Kansas City and Vicksburg.
On June 19, 2020, we completed a public offering of 20,700,000 shares of common
stock, at a public offering price of $39.00 per share, with proceeds of
$772 million, net of fees and estimated expenses of $35 million. On July 6,
2020, we issued $3.4 billion aggregate principal amount of 6.250% Senior Secured
Notes due 2025 (the "CEI Senior Secured Notes") and $1.8 billion aggregate
principal amount of 8.125% Senior Notes due 2027 (the "CEI Senior Notes"). In
addition, we issued $1.0 billion aggregate principal amount of 5.75% Senior
Secured Notes due 2025 (the "CRC Senior Secured Notes").
On July 1, 2020, we completed the sale of Kansas City and Vicksburg for
$230 million and used a portion of the proceeds to repay the outstanding balance
under our revolving credit facility. In addition, we closed the sale of Harrah's
Reno on September 30, 2020 which provided additional proceeds of $8 million, net
of certain closing costs.
On July 20, 2020, in connection with the Merger, we consummated the sale
leaseback transactions related to Harrah's New Orleans, Harrah's Laughlin and
Harrah's Resort Atlantic City, including the Harrah's Atlantic City Waterfront
Conference Center, for approximately $1.8 billion of net proceeds. Additionally,
we received a one-time payment from VICI of approximately $1.4 billion for
amendments to the VICI leases. Furthermore, we entered into an incremental
agreement to the existing CRC credit agreement, for an incremental term loan in
an aggregate principal amount of $1.8 billion.
In connection with the consummation of the Merger, on July 20, 2020, our current
and future liquidity significantly changed. A portion of the proceeds from our
newly issued debt and proceeds we received from VICI, as well as cash on hand
generated from our sale of common stock, were used (a) to fund a portion of the
cash consideration of the Merger, (b) to prepay in full the loans outstanding
and terminate all commitments under our existing Credit Agreement, dated as of
April 17, 2017, (c) to satisfy and discharge our Senior Notes, (d) to repay
$975 million of the outstanding amount under the existing CRC revolving credit
facility, (e) to repay in full the loans outstanding and terminate all
commitments under the existing CEOC, LLC Credit Agreement, dated as of October
6, 2017, (f) to pay fees and expenses related to the financing arrangements, and
(g) for general corporate use. Additionally, we entered into the CEI Revolving
Credit Facility which provides for a five-year senior secured revolving credit
facility in an aggregate principal amount of $1.2 billion.
On September 18, 2020, we entered into a $400 million Loan Agreement with a
subsidiary of VICI for a term of five years, with such loan secured by, among
other things, a first priority fee mortgage on the Caesars Forum Convention
Center (the "Forum Convention Center Mortgage Loan"). The interest rate on the
Forum Convention Center Mortgage Loan is initially 7.7% per annum, which
escalates annually to a maximum interest rate of 8.3% per annum. After the
second anniversary of the closing of the loan, we have the option of prepaying
the loan, which may include a premium.
As of September 30, 2020, our cash on hand and revolving borrowing capacity was
as follows:
(In millions)                                          September 30, 2020
Cash and cash equivalents                             $             1,037
Revolver capacity                                                   1,310
Revolver capacity committed to letters of credit                      (83)
Total                                                 $             2,264


On September 30, 2020, we announced that we had reached an agreement with
William Hill on the terms of a recommended cash acquisition pursuant to which
the we would acquire the entire issued and to be issued share capital (other
than shares owned by us or held in treasury) of William Hill, in an all-cash
transaction of approximately £2.9 billion, or $3.7 billion. The transaction is
conditional on, among other things, the approval of William Hill shareholders
and state and federal regulators.
On September 25, 2020, to provide liquidity to potentially fund a portion of the
cash purchase price, as required by UK regulators, we borrowed $900 million on
our CEI Revolving Credit Facility. On September 28, 2020, we deposited
$2.1 billion, which included the proceeds from the revolver, into an escrow
account related to the William Hill offer. As of September 30,
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2020 these funds in escrow were classified as restricted cash until we received
certain regulatory approvals for financing described below.
On September 28, 2020, we entered into a foreign exchange forward contract to
hedge the risk of appreciation of the GBP denominated purchase price. Under the
agreement, we would purchase £1.3 billion at a contracted exchange rate. An
unrealized loss of $5 million related to the change in fair value during the
period from September 28, 2020 and September 30, 2020 was recorded in the
consolidated condensed statement of operations. On October 1, 2020 the contract
was cancelled.
On October 1, 2020, we completed a public offering of 35,650,000 shares of our
common stock at a public offering price of $56.00 per share. Net proceeds from
the offering, after deducting the underwriting discounts and commissions and
estimated expenses, was approximately $1.9 billion. We expect to use
$1.7 billion of these proceeds for the acquisition of William Hill and, as such,
we deposited that amount into a UK escrow account denominated in British Pounds.
Upon receipt of regulatory approval of our Interim Facilities Agreement
(described below), the restriction on the $2.1 billion funded as of September
30, 2020, was released and we transferred $1.4 billion of cash back into our
operating accounts and the outstanding balance of our revolving credit facility
was repaid in full. Approximately $598 million of cash remains in an
unrestricted account.
On October 9, 2020, we entered into a foreign exchange forward contract to hedge
the risk of appreciation of the GBP denominated purchase price for the William
Hill acquisition. Under the agreement, we would purchase £536 million at a
contracted exchange rate. The forward term of the contract ends on March 31,
2021.
On October 6, 2020, we entered into a £1.5 billion interim facilities agreement
(the "Interim Facilities Agreement") with Deutsche Bank AG, London Branch and
JPMorgan Chase Bank, N.A. (the "Arrangers"). Pursuant to the Interim Facilities
Agreement, the Arrangers have made available to the Company: (a) a 540-day
£1.0 billion asset sale bridge facility and (b) a 60-day £503.0 million cash
confirmation bridge facility (collectively, the "Facility"). The Facility may be
used to finance the acquisition, refinance or otherwise discharge the
indebtedness of William Hill and its subsidiaries, pay transaction fees and
expenses related to the foregoing and for working capital and general corporate
purposes, among other things. The availability of the borrowings under the
Facility is subject to the satisfaction of certain customary conditions. If
drawn upon, outstanding borrowings under the Facility will bear interest at a
rate equal to the London interbank offered rate plus 3.50% per annum. We entered
into the Interim Facilities Agreement in connection with requirement under
applicable United Kingdom law to demonstrate that we have "funds certain" to pay
the entirety of the cash purchase price for the acquisition of William Hill. We
do not intend to borrow under the Interim Facilities Agreement. Instead, we
intend to negotiate long-form financing documentation pursuant to which a
subsidiary will incur the Debt Financing for the acquisition.
In addition to the capital required to complete the proposed acquisition of
William Hill, we expect that our primary capital requirements going forward will
relate to the operation and maintenance of our properties, taxes, servicing our
outstanding indebtedness, and rent payments under our GLPI Master Lease, the
VICI Leases and other leases. We make capital expenditures and perform
continuing refurbishment and maintenance at our properties to maintain our
quality standards. Our capital expenditure requirements for 2020 are expected to
significantly increase as a result of the additional properties acquired in the
Merger. In addition to our future capital expenditures for the normal course of
business, we funded $400 million to escrow as of the closing of the Merger and
will utilize those funds in accordance with a three year capital expenditure
plan in the state of New Jersey. We will also be required to fund a similar
escrow account with $25 million for improvements at our racing properties within
the state of Indiana. During the remainder of 2020, we plan to spend an
estimated $50 million to $75 million on capital expenditures. We expect to use
cash on hand and cash generated from operations to meet such obligations.
On August 27, 2020, Hurricane Laura made landfall on Lake Charles as a Category
4 storm. The hurricane severely damaged the Isle of Capri Casino Lake Charles
and the Company has recorded in insurance receivable of $31 million, of which
$15 million related to fixed asset impairments and $16 million related to
remediation costs and repairs that have been incurred in the three months ended
September 30, 2020. The property has remained closed.
A significant portion of our liquidity needs are for debt service and payments
associated with our leases. In addition to our newly issued debt, our debt
obligations increased as a result of outstanding debt of Former Caesars that
remained outstanding following the consummation of the Merger. Our estimated
debt service (including principal and interest) is approximately $165 million
for the remainder of 2020. We also lease certain real property assets from third
parties, including GLPI and VICI. We estimate our lease payments to be
approximately $300 million for the remainder of 2020.
The 5% Convertible Notes (defined below) remain outstanding following the
consummation of the Merger. As a result of the Merger, the 5% Convertible Notes
are convertible into weighted average of the number of shares of Company Common
Stock and amount of cash actually received per share by holders of common stock
of Former Caesars that made elections for
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consideration in the Merger. The 5% Convertible Notes are convertible at any
time at the option of the holders thereof and, beginning in October 2020, are
convertible at the option of the Company if the last reported sale price of
Company Common Stock equals or exceeds 140% of the conversion price for the 5%
Convertible Notes in effect on each of at least 20 trading days during any 30
consecutive trading day period. As of September 30, 2020, we have paid
approximately $574 million and issued approximately 6.8 million shares upon
conversion of $487 million in aggregate principal amount of the convertible
notes during 2020. Through November 2, 2020, we paid an additional $328 million
and issued 3.9 million shares upon conversion of an additional $281 million in
aggregate principal amount of the 5% Convertible Notes. At such time as the
holders of the 5% Convertible Notes elect to cause conversion, we estimate using
cash of $380 million and issuing 4.5 million shares to settle the remaining
outstanding 5% Convertible Notes.
On April 24, 2020, the Company entered into a definitive purchase agreement with
Twin River and certain of its affiliates for the sale of the equity interests of
Eldorado Resort Casino Shreveport Joint Venture and Columbia Properties Tahoe,
LLC, the entities that hold Eldorado Shreveport and MontBleu, respectively, for
aggregate consideration of $155 million, subject to a working capital
adjustment. The definitive agreement provides that the consummation of the sale
is subject to satisfaction of customary conditions, including receipt of
required regulatory approvals and the sale of Eldorado Shreveport and MontBleu
is expected to close in the first quarter of 2021.
On September 3, 2020, the Company and VICI entered into agreement to sell
Harrah's Louisiana Downs with Rubico Acquisition Corp. for $22 million, subject
to a customary working capital adjustment, where the proceeds will be split
between the Company and VICI. The sale is subject to satisfaction of customary
conditions, including receipt of required regulatory approvals and is expected
to close in the first half of 2021.
We previously reached an agreement with VICI to sell Bally'sAtlantic City Hotel
& Casino to Twin River for approximately $25 million. Caesars will receive
approximately $6 million from the sale. In addition, on October 9, 2020, we
reached an agreement to sell the Bally's brand to Twin River Worldwide Holding,
Inc. for $20 million, while retaining the right to use the brand within Bally'sLas Vegas into perpetuity.
In addition to the agreements above, we also expect to enter into additional
agreements to divest of Caesars Southern Indiana, Horseshoe Hammond and
Evansville prior to December 31, 2020, as required by the Indiana Gaming
Commission. Further, we expect to enter into agreements to sell several other
non-core properties including our international properties within our Caesars UK
group, which includes Emerald Resorts Casino. We expect these divestitures to
close by mid-year 2021.
We expect that our current liquidity, cash flows from operations, borrowings
under committed credit facilities and the announced asset sales, net of
associated taxes, will be sufficient to fund our operations, capital
requirements and service our outstanding indebtedness for the next twelve
months. However, the COVID-19 public health emergency has had, and is expected
to continue to have, an adverse effect on our business, financial condition and
results of operations and has caused, and may continue to cause, disruption in
the financial markets. While we have undertaken efforts to mitigate the impacts
of COVID-19 on our business and maintain liquidity, the extent of the ongoing
and future effects of the COVID-19 public health emergency on our business,
results of operations and financial condition is uncertain and may adversely
impact our liquidity in the future. Our ability to access additional capital may
be adversely affected by the disruption in the financial markets caused by the
COVID-19 public health emergency, restrictions on incurring additional
indebtedness contained in the agreements governing our indebtedness and the
impact of the public health emergency on our business, results of operations and
financial condition.
Debt and Master Lease Covenant Compliance
The CRC Credit Agreement, the CEI Revolving Credit Facility and the indenture
related to the CRC Notes and CEI Notes contain covenants which are standard and
customary for these types of agreements. These include negative covenants,
which, subject to certain exceptions and baskets, limit our ability to (among
other items) incur additional indebtedness, make investments, make restricted
payments, including dividends, grant liens, sell assets and make acquisitions.
The indenture for the 5% Convertible Notes contained limited covenants as a
result of amendments that became effective in connection with the consummation
of the Merger.
The CRC Revolving Credit Facility and CEI Revolving Credit Facility include a
maximum first-priority net senior secured leverage ratio financial covenant of
6.35:1, which is applicable solely to the extent that certain testing conditions
are satisfied. Failure to comply with such covenants could result in an
acceleration of the maturity of indebtedness outstanding under the relevant debt
document.
The Company's results of operations have been materially adversely affected by
the impacts of the COVID-19 public health emergency. As a result, the current
terms of the CRC Credit Agreement and the CEI Credit Agreement provide that the
financial covenant measurement period is not effective through September 30,
2021 so long as the CRC and the Company,
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respectively, comply with a minimum liquidity requirement, which includes any
such availability under the applicable revolving credit facilities.
The GLPI Master Lease contains certain operating, capital expenditure and
financial covenants thereunder, and our ability to comply with these covenants
was negatively impacted by the effects of the COVID-19 public health emergency
on our results of operations. On June 15, 2020, we entered into an amendment to
the GLPI Master Lease which provides certain relief under these covenants in the
event of facility closures due to public health emergencies, governmental
restrictions and certain other instances of unavoidable delay. On July 17, 2020,
the amendment to the GLPI Master Lease became effective as the Company obtained
all necessary approvals and the applicable waiting period expired. Furthermore,
the Company obtained waivers from VICI with relation to annual capital
expenditure requirements related to the leases with VICI, starting with the
annual period ending December 31, 2020.
As of September 30, 2020, we were in compliance with all of the applicable
financial covenants under the CRC Credit Agreement, the CEI Credit Agreement,
CEI Senior Secured Notes, CEI Senior Notes, CRC Secured Notes, 5% Convertible
Notes, the GLPI Leases and VICI Leases.
Share Repurchase Program
On November 8, 2018, we issued a press release announcing that its Board of
Directors has authorized a $150 million common stock repurchase program (the
"Share Repurchase Program") pursuant to which we may, from time to time,
repurchase shares of common stock on the open market (either with or without a
10b5-1 plan) or through privately negotiated transactions. The Share Repurchase
Program has no time limit and may be suspended or discontinued at any time
without notice. There is no minimum number of shares of common stock that we are
required to repurchase under the Share Repurchase Program.
As of September 30, 2020, we acquired 223,823 shares of common stock under the
program at an aggregate value of $9 million and an average of $40.80 per share.
No shares were repurchased during the nine months ended September 30, 2020 and
2019.
Debt Obligations and Leases
New Debt Transactions
We were party to a credit agreement with JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party thereto dated as of April 17, 2017
(as amended, the "ERI Credit Facility"), consisting of a $1.5 billion term loan
facility and a $500 million revolving credit facility.
In an effort to maintain liquidity and provide financial flexibility as the
effects of COVID-19 continued to evolve and impact global financial markets, we
borrowed $465 million under the ERI Credit Facility on March 16, 2020, which we
repaid in July 2020 utilizing, in part, proceeds from the sale of our interests
in Kansas City and Vicksburg.
On July 6, 2020, Colt Merger Sub, Inc., a wholly-owned subsidiary of the Company
("Escrow Issuer") issued $3.4 billion aggregate principal amount of 6.250%
Senior Secured Notes due 2025 (the "CEI Senior Secured Notes"), $1.8 billion
aggregate principal amount of 8.125% Senior Notes due 2027 (the "CEI Senior
Notes") and $1.0 billion aggregate principal amount of 5.75% Senior Secured
Notes due 2025 (the "CRC Senior Secured Notes").
On July 20, 2020, in connection with the closing of the Merger, the Company
entered into a new credit agreement ("CEI Credit Agreement") which provides a
five-year senior secured revolving credit facility for an aggregate principal
amount of $1.2 billion (the "CEI Revolving Credit Facility"). In addition,
Caesars Resort Collection, LLC, which became a wholly-owned subsidiary of the
Company as a result of the Merger ("CRC"), entered into an incremental agreement
to the CRC Credit Agreement (described below) for an aggregate principal amount
of $1.8 billion.
A portion of the proceeds from these arrangements was used to prepay in full the
loans outstanding and terminate all commitments under the ERI Credit Facility,
and to satisfy and discharge the Company's 6% Senior Notes due 2025, 6% Senior
Notes due 2026, and the 7% Senior Notes due 2023.
The 6% Senior Notes due 2025 were redeemed at a redemption price of 105%, the 7%
Senior Notes due 2023 were redeemed at a redemption price of 103.5%, and
$210 million aggregate principal amount of the 6% Senior Notes due 2026 was
redeemed at a redemption price of 106% with the remaining balance redeemed at a
redemption price of 100% of the aggregate principal amount thereof plus the
Applicable Premium, as defined in the indenture for the 6% Senior Notes due
2026. The redemption of these Notes resulted in a loss on extinguishment of debt
of $132 million during the three and nine months ended September 30, 2020, which
is recorded within other (loss) income on the Statement of Operations.
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CEI Senior Secured Notes due 2025
On July 6, 2020, Escrow Issuer issued $3.4 billion in aggregate principal amount
of 6.250% CEI Senior Secured Notes pursuant to an indenture dated July 6, 2020
(the "Senior Secured Notes Indenture"), by and among the Escrow Issuer, U.S.
Bank National Association, as trustee, and U.S. Bank National Association, as
collateral agent. In connection with the consummation of the Merger, we assumed
the rights and obligations under the CEI Senior Secured Notes and the Senior
Secured Notes Indenture on July 20, 2020.The CEI Senior Secured Notes will
mature on July 1, 2025 with interest payable semi-annually in cash in arrears on
January 1 and July 1 of each year, commencing January 1, 2021.
CEI Senior Notes due 2027
On July 6, 2020, Escrow Issuer issued $1.8 billion in aggregate principal amount
of 8.125% Senior Notes due 2027 pursuant to an indenture, dated July 6, 2020
(the "Senior Notes Indenture"), by and between the Escrow Issuer and U.S. Bank
National Association, as trustee. We assumed the rights and obligations under
the CEI Senior Notes and the Senior Notes Indenture on July 20, 2020. The CEI
Secured Notes will mature on July 1, 2027 with interest payable semi-annually in
cash in arrears on January 1 and July 1 of each year, commencing January 1,
2021.
CRC Senior Secured Notes due 2025
On July 6, 2020, Escrow Issuer issued $1.0 billion in aggregate principal amount
of 5.75% Senior Notes due 2025 pursuant to an indenture, dated July 6, 2020 (the
"CRC Senior Secured Notes Indenture"), by and among the Escrow Issuer, U.S. Bank
National Association, as trustee and Credit Suisse AG, Cayman Islands Branch, as
collateral agent. CRC assumed the rights and obligations, jointly and severally,
under the CRC Senior Secured Notes on July 20, 2020. The rights and obligations
under the CRC Senior Secured Notes to be assumed jointly and severally by CRC.
The CRC Senior Secured Notes will mature on July 1, 2025 with interest payable
semi-annually in cash in arrears on January 1 and July 1 of each year,
commencing January 1, 2021.
CEI Revolving Credit Facility
On July 20, 2020, we entered into a new credit agreement with JPMorgan Chase
Bank, N.A., as administrative agent, U.S. Bank National Association, as
collateral agent, and certain banks and other financial institutions and lenders
party thereto, as well as an incremental amendment thereto, which provide for a
five-year CEI Revolving Credit Facility for an aggregate principal amount of
$1.2 billion. The CEI Revolving Credit Facility matures in 2025 and includes a
letter of credit sub-facility of $250 million.
The interest rate per annum applicable under the CEI Revolving Credit Facility,
at the Company's option is either (a) LIBOR adjusted for certain additional
costs, subject to a floor of 0% or (b) a base rate determined by reference to
the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as
determined by JPMorgan Chase Bank, N.A. and (iii) the one-month adjusted LIBOR
rate plus 1.00%, in each case plus an applicable margin. Such applicable margin
shall be 3.25% per annum in the case of any LIBOR loan and 2.25% per annum in
the case of any base rate loan, subject to three 0.25% step-downs based on the
Company's total leverage ratio.
Additionally, we are required to pay a commitment fee in respect of any unused
commitments under CEI Revolving Credit Facility in the amount of 0.50% of
principal amount of the commitments of all lenders, subject to a step-down to
0.375% based upon the Company's total leverage ratio. We are also required to
pay customary agency fees as well as letter of credit participation fees
computed at a rate per annum equal to the applicable margin for LIBOR borrowings
on the dollar equivalent of the daily stated amount of outstanding letters of
credit, plus such letter of credit issuer's customary documentary and processing
fees and charges and a fronting fee in an amount equal to 0.125% of the daily
stated amount of such letter of credit.
We had $266 million of available borrowing capacity, after consideration of $19
million in outstanding letters of credit under CEI Revolving Credit Facility, as
of September 30, 2020.
Convention Center Mortgage Loan
On September 18, 2020, we entered into a loan agreement with VICI to borrow a
5-year, $400 millionForum Convention Center mortgage loan (the "Mortgage
Loan"). The Mortgage Loan bears interest at a rate of, initially, 7.7% per
annum, which escalates annually to a maximum interest rate of 8.3% per annum.
Assumed Debt Activity
Former Caesars and its subsidiaries incurred the following indebtedness that
remained outstanding following the consummation of the Merger.
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CRC Term Loans and CRC Revolving Credit Facility
In connection with the Merger, we assumed the CRC senior secured credit facility
(the "CRC Senior Secured Credit Facilities"), which included a $1.0 billion
five-year revolving credit facility (the "CRC Revolving Credit Facility") and an
initial $4.7 billion seven-year first lien term loan (the "CRC Term Loan"). The
CRC Senior Secured Credit Facilities were funded pursuant to the Credit
Agreement, dated as of December 22, 2017 (the "CRC Credit Agreement"). On July
20, 2020, in connection with the closing of the Merger, CRC entered into an
incremental amendments to the CRC Credit Agreement, which provided a
$1.8 billion incremental tern loan ("CRC Incremental Term Loan").
The CRC Term Loan matures in 2024. The CRC Incremental Term Loan matures in
2025. The CRC Revolving Credit Facility matures in 2022 and includes a letter of
credit sub-facility. Each of the CRC Term Loan requires scheduled quarterly
principal payments in amounts equal to 0.25% of the original aggregate principal
amount, with the balance due at maturity. The CRC Credit Agreement also includes
customary voluntary and mandatory prepayment provisions, subject to certain
exceptions. As of September 30, 2020, approximately $64 million was committed to
outstanding letters of credit. As of September 30, 2020, there were no
borrowings outstanding under the CRC Revolving Credit Facility.
Borrowings under the CRC Credit Agreement bear interest at a rate equal to
either (a) LIBOR adjusted for certain additional costs, subject to a floor of 0%
or (b) a base rate determined by reference to the highest of (i) the federal
funds rate plus 0.50%, (ii) the prime rate as determined by Credit Suisse AG,
Cayman Islands Branch, as administrative agent under the CRC Credit Agreement
and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an
applicable margin. Such applicable margin shall be (a) with respect to the CRC
Term Loan, 2.75% per annum in the case of any LIBOR loan or 1.75% per annum in
the case of any base rate loan, (b) with respect to the CRC Incremental Term
Loan, 4.50% per annum in the case of any LIBOR loan or 3.50% in the case of any
base rate loan and (c) in the case of the CRC Revolving Credit Facility, 2.25%
per annum in the case of any LIBOR loan and 1.25% per annum in the case of any
base rate loan, subject in the case of the CRC Revolving Credit Facility to two
0.125% step-downs based on CRC's senior secured leverage ratio ("SSLR"), the
ratio of first lien senior secured net debt to adjusted earnings before
interest, taxes, depreciation and amortization. The CRC Revolving Credit
Facility is subject to a financial covenant discussed below.
In addition, CRC is required to pay a commitment fee in respect of any
commitments under the CRC Revolving Credit Facility in the amount of 0.50% of
the principal amount of the commitments, subject to step-downs to 0.375% and
0.25% based upon CRC's SSLR. CRC is also required to pay customary agency fees
as well as letter of credit participation fees computed at a rate per annum
equal to the applicable margin for LIBOR borrowings on the dollar equivalent of
the daily stated amount of outstanding letters of credit, plus such letter of
credit issuer's customary documentary and processing fees and charges and a
fronting fee in an amount equal to 0.125% of the daily stated amount of such
letter of credit.
Former Caesars 5% Convertible Notes
On October 6, 2017, Former Caesars issued $1.1 billion aggregate principal
amount of 5.00% convertible senior notes maturing in 2024 (the "5% Convertible
Notes").
The 5% Convertible Notes are convertible into weighted average of the number of
shares of Company Common Stock and amount of cash actually received per share by
holders of common stock of Former Caesars that made elections for consideration
in the Merger. As of September 30, 2020, we have paid approximately $574 million
and issued approximately 6.8 million shares to settle $487 million of the
convertible notes during 2020. In October 2020, we paid an additional
$328 million and issued 3.9 million shares to settle an additional $281 million
of the convertible notes.
The Company has determined that the 5% Convertible Notes contain derivative
features that require bifurcation. The Company separately account for the
liability component and equity conversion option of the Convertible Notes. The
portion of the overall fair value allocated to the liability was calculated by
using a market-based approach without the conversion features included. The
difference between the overall instrument value and the value of the liability
component was assumed to be the value of the equity component. See Note 11 for
more information on the Convertible Notes' fair value measurements.
Net amortization of the debt issuance costs and the discount and/or premium
associated with the Company's indebtedness totaled $34 million and $2 million
for the three months ended September 30, 2020 and 2019, respectively, and $37
million and $6 million for the nine months ended September 30, 2020 and 2019
respectively. Amortization of debt issuance costs is computed using the
effective interest method and is included in interest expense.
VICI Leases
Upon consummation of the Merger, we assumed obligations of certain real property
assets leased from VICI by Former Caesars under the following agreements: (i)
for a portfolio of properties at various locations throughout the United States
(the "Non-
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CPLV lease"), (ii) for Caesars Palace Las Vegas (the "CPLV lease"), (iii) for
Harrah's Joliet Hotel & Casino (the "Joliet Lease") and (iv) for Harrah's Las
Vegas (the "HLV Lease"). These lease agreements provided for annual fixed rent
(subject to escalation) of $773 million during an initial period, then rent
consisting of both base rent and variable rent elements. The lease agreements
had a 15-year initial term and four five-year renewal options. The lease
agreements included escalation provisions beginning in year two of the initial
term and continuing through the renewal terms. The lease agreements also
included provisions for variable rent payments calculated, in part, based on
increases or decreases of net revenue of the underlying lease properties,
commencing in year eight of the initial term and continuing through the renewal
terms.
Former Caesars entered into a Golf Course Use Agreement with VICI, which has a
35-year term (inclusive of all renewal periods), pursuant to which such
affiliates of the Company agreed to pay (i) an annual payment of $10 million,
subject to escalation, (ii) an annual use fee of $3 million, subject to
escalation beginning in the second year, and (iii) certain per-round fees, all
as more particularly set forth in the Golf Course Use Agreement.
In connection with the closing of the Merger on July 20, 2020, we consummated a
series of transactions with VICI and certain of its affiliates in accordance
with the MTA entered on June 24, 2019 and certain purchase and sales agreement
entered on September 26, 2019. We consummated sale leaseback transactions
related to Harrah's New Orleans, Harrah's Laughlin and Harrah's Resort Atlantic
City, including the Harrah's Atlantic City Waterfront Conference Center, for
approximately $1.8 billion of net proceeds. The CPLV Lease with VICI was
amended, among other things, (i) add Harrah's Las Vegas ("HLV") to the leased
premises thereunder (and in connection therewith HLV Lease was terminated), (ii)
add (subject to certain adjustments) the rent payable with respect to HLV under
such terminated stand-alone lease to such lease and further increase the annual
rent payable with respect to HLV by approximately $15 million, (iii) increase
the annual rent with respect to CPLV by approximately $84 million and (iv)
extend the term of such lease so that following the amendment of such lease
there will be 15 years remaining until the expiration of the initial term. In
addition, Harrah's New Orleans, Harrah's Laughlin, and Harrah's Resort Atlantic
City, including the Harrah's Atlantic City Waterfront Conference Center, were
added to the Regional Lease and such lease was further amended to increase the
annual rent thereunder by $154 million in the aggregate related to such added
properties and extend the term of such lease so that following the amendment of
such lease there will be 15 years remaining until the expiration of the initial
term. Furthermore, the Joliet Lease, as well as the term of the Golf Course Use
Agreement, were extended such that there will be 15 years remaining until the
expiration of the initial term. Our VICI lease is accounted for as a financing
obligation and totaled $11 billion as of September 30, 2020. Furthermore, we
obtained waivers from VICI with relation to annual capital expenditure
requirements. This waiver is effective as of June 1, 2020 until December 31,
2020. See Note 9 to our Consolidated Condensed Financial Statements for
additional information about our VICI Lease and related matters.
GLPI Leases
Our GLPI Master Lease is accounted for as a financing obligation and totaled
$1.2 billion as of September 30, 2020. Additionally, our GLPI Master Lease
contains certain operating, capital expenditure and financial covenants
thereunder, and our ability to maintain compliance with these covenants was also
negatively impacted. On June 15, 2020, we entered into an amendment to the GLPI
Master Lease which, among other things, provides certain relief under these
covenants in the event of facility closures due to pandemics, governmental
restrictions and certain other instances of unavoidable delay. As of July 17,
2020, the amendment to the GLPI Master Lease became effective as we obtained all
necessary approvals and the applicable waiting period expired. See Note 9 to our
Consolidated Condensed Financial Statements for additional information about our
GLPI Master Lease and related matters.
Contractual Obligations
The Company assumed various long-term debt arrangements, financing obligations
and leases, previously described, associated with Former Caesars as result of
the consummation of the Merger. See Note 2 for a description of the Merger and
the related obligations assumed and Note 13 for additional contractual
obligations. There have been no material changes during the nine months ended
September 30, 2020 to our contractual obligations as disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2019.
Other Liquidity Matters
We are faced with certain contingencies involving litigation and environmental
remediation and compliance. These commitments and contingencies are discussed in
"Part II, Item 1. Legal Proceedings" and Note 13 to our unaudited consolidated
condensed financial statements, both of which are included elsewhere in this
report. In addition, new competition may have a material adverse effect on our
revenues, and could have a similar adverse effect on our liquidity. See "Part I,
Item 1A. Risk Factors-Risks Related to Our Business" which is included in our
Annual Report on Form 10-K for the year ended December 31, 2019 and "Part II,
Item IA. Risk Factors" which is included in this Quarterly Report on Form 10-Q
for the quarter ended September 30, 2020.
                                       64

--------------------------------------------------------------------------------


Critical Accounting Policies
Our critical accounting policies disclosures are included in our Annual Report
on Form 10-K for the year ended December 31, 2019. Except as described in Note 1
and Note 2, as it relates to the Merger with Former Caesars, to the accompanying
notes of these consolidated condensed financial statements, we believe there
have been no material changes since December 31, 2019. We have not substantively
changed the application of our policies and there have been no material changes
in assumptions or estimation techniques used as compared to prior periods.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements.

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