Business Context and Reporting Period
This Form 8-K was filed by Eldorado Resorts, Inc. on April 17, 2017. The filing reports the entry into a material definitive agreement by Eagle II Acquisition Company LLC, a wholly-owned subsidiary of Eldorado, to secure financing for the pending acquisition of Isle of Capri Casinos, Inc. (the "Acquisition").
Key Financial Metrics and Debt Structure
The filing details the establishment of a new credit facility ("New Credit Facility") with the following terms:
- Total Facility Size: $1.75 billion, comprising a $1.45 billion term loan and a $300 million revolving credit facility.
- Utilization: The $1.45 billion term loan proceeds were placed in escrow pending the Acquisition. The $300 million revolving facility was undrawn as of the closing date.
- Maturity Dates: The revolving facility matures on April 17, 2022; the term loan matures on April 17, 2024.
- Interest Rates:
- Revolving: LIBOR + 1.75% to 2.50% or Base Rate + 0.75% to 1.50% (initial margin expected at 2.25% and 1.25% respectively).
- Term Loan: LIBOR + 2.25% or Base Rate + 1.25% (with floors of 0% for LIBOR and 1.00% for Base Rate).
- Principal Repayment: Quarterly payments of $3,625,000 on the term loan beginning June 30, 2017.
Material Changes and Use of Proceeds
The primary material change is the restructuring of debt to facilitate the acquisition of Isle of Capri. The proceeds from the New Credit Facility, combined with proceeds from 6% Senior Notes due 2025 and cash on hand, are designated for:
- Paying the cash portion of the consideration for the Acquisition.
- Refinancing all debt under Isle of Capri's existing credit facility.
- Redeeming Isle of Capri's outstanding 5.875% Senior Notes due 2021 and 8.875% Senior Subordinated Notes due 2020.
- Repaying all amounts outstanding under Eldorado's existing credit facility.
- Paying associated fees and transaction costs.
Until the Acquisition is consummated, the obligations are secured by the escrowed cash proceeds. If the Acquisition is not completed by June 19, 2017 (or September 18, 2017 if extended), the facility must be repaid and commitments terminated.
Covenants, Risks, and Contingencies
The New Credit Facility includes strict financial and restrictive covenants:
- Financial Covenants (Revolving Facility Only):
- Maximum Leverage Ratio: 6.50:1.00 (through Q4 2018), 6.00:1.00 (2019), and 5.50:1.00 (2020 onwards).
- Interest Coverage Ratio: Minimum 2.00:1.00 (through Q4 2018), 2.50:1.00 (2019), and 2.75:1.00 (2020 onwards).
- Restrictive Covenants: Limitations on incurring additional debt, creating liens, mergers, asset dispositions, paying dividends, and making investments.
- Events of Default: Include non-payment, cross-default to other indebtedness, bankruptcy, loss of gaming licenses, and changes of control.
- Contingency: The Company assumes no obligation under the facility until the Acquisition is consummated and the escrow is released.
Investor Verification Checklist
- Verify the closing date and final terms of the acquisition of Isle of Capri Casinos, Inc.
- Confirm the successful redemption of Isle of Capri's 2020 and 2021 senior notes.
- Monitor the Company's consolidated total leverage ratio to ensure compliance with the 6.50:1.00 initial covenant threshold.
- Review the status of the escrow account and the release of funds upon Acquisition consummation.
- Assess the impact of the new debt service obligations (quarterly principal payments and interest) on future cash flow.