The Wall Street Skinny 39. LBO Deep Dive: Caesars Palace Coup, Part I
Dec 16, 2023
In this episode, the hosts do a deep dive into a $30bn LBO of Caesars Palace by Apollo and TPG. They discuss the deal structure, financing terms, and motivations of private equity titans. The podcast explores leverage buyouts, restructuring, and the roles of parent company, operating company, and subsidiary. It also provides an overview of LBO structure and the background of the deal.
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Caesars LBO: Huge Deal, Huge Risks
- Caesars Palace LBO was a $30 billion deal led by Apollo and TPG, relying heavily on debt and a small equity contribution.
- The financial crisis shortly after the deal triggered a cascade of financial distress and restructuring drama.
Capital Structure Hierarchy Explained
- In capital structures, senior creditors get paid first and have lower risk, while equity holders are last and face high risk for high reward.
- Private equity firms usually face losses first in bankruptcy, but Caesars' deal complicated this hierarchy for their advantage.
Club Deals and Co-Investing
- Apollo and TPG contributed less than half of the equity themselves; co-investors like Blackstone, Goldman Sachs, and others covered the rest.
- Such large club deals were common pre-2008 but later fell out of favor due to operational conflicts and regulatory issues.