As the coronavirus rages on around the US, and the rest of the world, fears that the highly contagious virus might derail what could be the largest casino industry merger are rising by the day.
When Eldorado Resorts, a Reno, Nevada-based regional casino operator, announced its takeover of larger rival Caesars Entertainment Corp. last June, the company expected that the deal would close by late March or early April.
Then the coronavirus stormed through the US casino and hospitality industries, grinding activities to a near halt and forcing gambling regulators to put the proposed $17.3 billion tie-up on the back burner and focus on more pressing issues.
However, as Covid-19 continues to wreak havoc in stock markets and the economy at large, a deal that would create a hotel and casino behemoth strapped with a $20-plus-billion debt could eventually fall through.
Regulators Delaying Rulings on Merger
Caesars and Eldorado need approval from the regulators in the states where the two companies run properties, in order to be able to close the deal.
A handful of regulators have already blessed the marriage of the two companies, but there are still several that failed to rule on the tie-up before the start of the coronavirus crisis.
The Chair of the Nevada Gaming Control Board, Tony Alamo, this week told the New York Post that “there are much more important things happening in our country and industry” but that the merger is still under investigation in the Silver State.
The Nevada Gaming Control Board’s next meeting is scheduled for April.
In New Jersey, where Caesars operates three casinos and Eldorado runs one, the state Casino Control Commission is likely to hold its next meeting on May 13, as revealed by the regulator’s Chair, Jim Plousis.
However, with regulators being busy with other issues, including securing federal funding for the hibernating casino industry, and all the uncertainties stemming from the coronavirus outbreak, Eldorado is now required to pay a ticking fee to Caesars after failing to close the merger within nine months after it was first announced.
Eldorado Could Go Bankrupt if Merger Fails
Eldorado is paying its larger rival around $2.3 million a day in ticking fees. The fee is estimated to reach at least $100 million if the Nevada Gaming Control Board approves the merger at its next meeting in April and its New Jersey counterpart OKs it in May.
If the deal between the two major casino operators falls through, Eldorado will have to pay a penalty fee of $837 million. The company reported late last year $206 million in cash and a $500 million revolving line of credit, which meant that it had access to $706 million in hand.
It emerged this week that Eldorado has drawn down $480 million on its $500 million revolver, although it is unknown what it would or has done with that money.
All of the company’s casino properties are now temporarily closed until further notice in response to the coronavirus emergency and it loses millions of dollars every day. New York investment bank Cowen estimates that Eldorado could lose around $215 million if its casinos remain closed through June.
This means that if its merger with Caesars fails, Eldorado’s obligation to pay the $800-plus million break-up fee could force it into bankruptcy.