Note 5—Debt

The following table presents our outstanding debt as of September 30, 2012 and December 31, 2011:


Detail of Debt (dollars in millions)	Final Maturity	Rate(s) at Sept. 30, 2012	Face Value at Sept. 30, 2012			Book Value at Sept. 30, 2012			Book Value at Dec. 31, 2011
Credit Facilities
Term Loans B1 - B3	2015	3.22%	$	1,985.7		$	1,985.7		$	5,000.5
Term Loan B4	2016	9.50%		972.5			956.1			961.2
Term Loan B5	2018	4.47%		1,222.7			1,218.7			1,218.2
Term Loan B6	2018	5.47%		2,044.9			2,027.9			—
Revolving Credit Facility	2014	—		—			—			155.0
Revolving Credit Facility	2017	—		—			—			—
Secured Debt
Senior Secured Notes	2017	11.25%		2,095.0			2,058.7			2,054.6
Senior Secured Notes	2020	8.50%		1,250.0			1,250.0			—
Senior Secured Notes	2020 ^(a)	9.00%		750.0			750.0			—
CMBS Financing	2015 ^(b)	3.24%		4,829.1			4,825.0			5,026.0
Second-Priority Senior Secured Notes	2018	12.75%		750.0			742.7			742.1
Second-Priority Senior Secured Notes	2018	10.00%		4,553.1			2,224.6			2,131.2
Second-Priority Senior Secured Notes	2015	10.00%		214.8			171.2			164.2
Chester Downs Term Loan	2016	—		—			—			221.3
Chester Downs Senior Secured Notes	2020	9.25%		330.0			330.0			—
PHW Las Vegas Senior Secured Loan	2015 ^(b)	3.10%		515.6			433.0			417.9
Linq/Octavius Senior Secured Loan	2017	9.25%		450.0			446.3			445.9
Subsidiary-Guaranteed Debt
Senior Notes	2016	10.75%		478.6			478.6			478.6
Senior PIK Toggle Notes	2018	10.75%/11.5%		9.8			9.8			8.6
Unsecured Senior Debt
5.375%	2013	5.375%		125.2			114.5			108.6
7.0%	2013	7.00%		0.6			0.6			0.6
5.625%	2015	5.625%		364.5			301.7			287.7
6.5%	2016	6.50%		248.7			198.2			190.6
5.75%	2017	5.75%		147.9			106.6			107.2
Floating Rate Contingent Convertible Senior Notes	2024	0.57%		0.2			0.2			0.2
Other Unsecured Borrowings
Special Improvement District Bonds	2037	5.30%		64.3			64.3			65.7
Other	Various	Various		28.9			28.9			0.4
Capitalized Lease Obligations	to 2014	1.10%-9.49%		35.2			35.2			13.6

Total Debt				23,467.3			20,758.5			19,799.9
Current Portion of Long-Term Debt ^(a) (c)				(800.8	)		(797.3	)		(40.4	)

Long-Term Debt			$	22,666.5		$	19,961.2		$	19,759.5

^(a)	Represents the note offering that occurred in August 2012. Although the notes mature in 2020, they are classified as short-term obligations within our September 30, 2012 balance sheet because the escrow conditions were not met as of that date.

^(b)	Assumes the exercise of extension options to move the maturity from 2013 to 2015, subject to certain conditions.

^(c)	The CMBS Financing is not included in our current portion of long-term debt due to (b) above.

As of September 30, 2012 and December 31, 2011, book values are presented net of unamortized discounts of $2,708.8 million and $2,858.0 million, respectively.

Our current maturities of debt include required interim principal payments on certain Term Loans, the special improvement district bonds and capitalized lease obligations. The current portion of long-term debt also includes $750.0 million and $0.6 million of 9.0% senior secured notes and 7.0% unsecured senior debt, respectively. Our current maturities exclude the CMBS financing due in February 2013 based upon the assumed exercise of our option to extend the maturity to 2015.

Credit Agreement

In connection with the Acquisition, CEOC entered into the senior secured credit facilities (the “Credit Facilities”). This financing is neither secured nor guaranteed by Caesars Entertainment’s other direct, wholly-owned subsidiaries, including the subsidiaries that own properties that are security for the CMBS Financing, as defined in our 2011 10-K.

In May 2011, CEOC amended its Credit Facilities to, among other things: (i) allow CEOC to buy back loans from individual lenders at negotiated prices at any time, which may be less than par, (ii) allow CEOC to extend the maturity of term loans or revolving commitments, as applicable, and for CEOC to otherwise modify the terms of loans or revolving commitments in connection with such an extension, and (iii) modify certain other provisions of the Credit Facilities. CEOC also extended its Credit Facilities by (i) converting $799.4 million of B-1, B-2 and B-3 term loans held by consenting lenders to B-5 term loans with an extended maturity date of January 28, 2018 and a higher interest rate with respect to such extended term loans (the “Extended Term Loans”) and (ii) converting $423.3 million of revolver commitments held by consenting lenders into Extended Term Loans.

In March 2012, CEOC amended its Credit Facilities to, among other things, (i) extend the maturity of $2,731.4 million of B-1, B-2 and B-3 term loans held by consenting lenders from January 28, 2015 to January 28, 2018 and increase the interest rate with respect to such extended term loans (the “Term B-6 Loans”); (ii) convert $82.3 million of original maturity revolver commitments held by consenting lenders to Term B-6 Loans and promptly following such conversion, repay $1,095.6 million of B-1, B-2, B-3 and B-6 term loans; (iii) extend the maturity of $25.0 million original maturity revolver commitments from January 28, 2014 to January 28, 2017 and increase the interest rate and the undrawn commitment fee with respect to such extended revolver commitments and terminate $6.3 million of original maturity revolver commitments; and (iv) modify certain other provisions of the Credit Facilities. In addition to the foregoing, CEOC may elect to extend and/or convert additional term loans and/or revolver commitments from time to time.

During the second and third quarters of 2012, CEOC extended the maturity on an additional $123.5 million of B-1, B-2, and B-3 term loans and converted another $47.3 million of original maturity revolver commitments to Term B-6 Loans.

As of September 30, 2012, our Credit Facilities provide for senior secured financing of up to $7,296.8 million, consisting of (i) senior secured term loans in an aggregate principal amount of $6,225.8 million, comprised of $1,985.7 million maturing on January 28, 2015, $972.5 million maturing on October 31, 2016, and $3,267.6 million maturing on January 28, 2018, and (ii) a senior secured revolving credit facility in an aggregate principal amount of up to $1,071.0 million, with $1,046.0 million maturing January 28, 2014 and $25.0 million maturing on January 28, 2017, including both a letter of credit sub-facility and a swingline loan sub-facility. The term loans under the Credit Facilities require scheduled quarterly payments of $3.7 million, with the balance due at maturity. As of September 30, 2012, $95.5 million of the revolving credit facility is committed to outstanding letters of credit. After consideration of the letter of credit commitments, $975.5 million of additional borrowing capacity was available to the Company under its revolving credit facility as of September 30, 2012.

Subsequent to September 30, 2012, CEOC consummated extension transactions with lenders under its Credit Facilities. See Note 16, “Subsequent Events” for further discussion.

CMBS Financing

In March 2011, we purchased $108.1 million of face value of CMBS Loans for $73.5 million, recognizing a gain of $33.2 million, net of deferred financing costs. In April 2011, we purchased $50.0 million of face value of CMBS Loans for $35.0 million, recognizing a gain of $14.3 million, net of deferred financing costs.

In January 2012, we purchased $2.0 million of face value of CMBS Loans for $1.0 million, recognizing a gain of $1.0 million, net of deferred financing costs. In March 2012, we purchased $116.7 million of face value of CMBS Loans for $70.8 million, recognizing a gain of $44.8 million, net of deferred financing costs. In April 2012, we purchased $83.7 million of face value of CMBS Loans for $50.2 million, recognizing a gain of $32.7 million, net of deferred finance charges.

Other Financing Transactions

In February 2012, Chester Downs issued $330.0 million aggregate principal amount of 9.25% senior secured notes due 2020 through a private placement. Chester Downs used $232.4 million of the proceeds of the notes to repay its existing term loan plus accrued interest and a prepayment penalty. The remaining proceeds were used to make a distribution to Chester Downs’ managing member, Harrah’s Chester Downs Investment Company, LLC, a wholly-owned subsidiary of CEOC, and for other general corporate purposes.

In February 2012, Caesars Operating Escrow LLC and Caesars Escrow Corporation, wholly-owned unrestricted subsidiaries of CEOC, completed the offering of $1,250.0 million aggregate principal amount of 8.5% senior secured notes due 2020 (the “8.5% notes”), the proceeds of which were placed into escrow. On March 1, 2012, the escrow conditions were satisfied and CEOC assumed the 8.5% notes. CEOC used $1,095.6 million of the net proceeds from this transaction to repay a portion of its senior secured term loans under the Credit Facilities in connection with the March 2012 amendment discussed above.

During the second quarter of 2012, a subsidiary of Caesars Entertainment purchased $5.9 million face value of CEOC debt for $3.2 million, recognizing a gain of $1.0 million.

In June 2012, a subsidiary of Caesars Entertainment issued a non-interest bearing promissory note in the amount of $28.5 million. See Note 7, “Stockholders’ Equity, Non-controlling Interests and Loss Per Share,” for more information.

In August 2012, Caesars Operating Escrow LLC and Caesars Escrow Corporation, wholly-owned unrestricted subsidiaries of CEOC, completed the offering of $750.0 million aggregate principal amount of 9% senior secured notes due 2020 (the “9% notes”), the proceeds of which were placed into escrow and recorded as short-term restricted cash. On October 5, 2012, the escrow conditions were satisfied and CEOC assumed the 9% notes. CEOC used $478.8 million of the net proceeds from this transaction to repay a portion of its senior secured term loans under the Credit Facilities in connection with the consummation of the transactions occurring subsequent to September 30, 2012 as further described in Note 16, “Subsequent Events”.

Restrictive Covenants and Other Matters

Certain of our borrowings have covenants and requirements that include, among other things, the maintenance of specific levels of financial ratios. Failure to comply with these covenants can result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions. Specifically, CEOC’s senior secured credit facilities require CEOC to maintain a senior secured leverage ratio of no more than 4.75 to 1.0, which is the ratio of senior first priority secured debt to last twelve months (“LTM”) Adjusted EBITDA-Pro Forma - CEOC Restricted. This ratio excludes up to $2,200.0 million of first priority senior secured notes and up to $350.0 million aggregate principal amount of consolidated debt of subsidiaries that are not wholly owned. This ratio also reduces the amount of senior first priority secured debt by the amount of unrestricted cash on hand. As of September 30, 2012, CEOC’s senior secured leverage ratio was 4.02 to 1.0. Many factors affect CEOC’s continuing ability to comply with the covenant including (a) changes in gaming trips, spend per trip and hotel metrics, which are correlated to a consumer recovery, (b) increases in cost-savings actions, (c) asset sales, (d) issuing additional second lien or unsecured debt, (e) equity financings, (f) delays in investments in new developments, or (g) a combination thereof. In addition, under certain circumstances, our senior secured credit facilities allow us to apply cash contributions received by CEOC as an increase to Adjusted EBITDA if CEOC is unable to meet its Senior Secured Leverage Ratio.

In addition, certain covenants contained in CEOC’s senior secured credit facilities and indentures covering its second priority senior secured notes and first priority senior secured notes restrict our ability to take certain actions such as incurring additional debt or making acquisitions if we are unable to meet a fixed charge coverage ratio (LTM Adjusted EBITDA-Pro Forma - CEOC Restricted to fixed charges) of at least 2.0 to 1.0, a total first priority secured leverage ratio (first priority senior secured debt to LTM Adjusted EBITDA-Pro Forma - CEOC Restricted) of no more than 4.5 to 1.0, and/or a consolidated leverage ratio (consolidated total debt to LTM Adjusted EBITDA-Pro Forma - CEOC Restricted) of no more than 7.25 to 1.0. As of September 30, 2012, CEOC’s total first priority secured leverage ratio and consolidated leverage ratio were 5.74 to 1.0 and 11.67 to 1.0, respectively. For the twelve months ended September 30, 2012, CEOC’s LTM Adjusted EBITDA-Pro Forma - CEOC Restricted were insufficient to cover fixed charges by $570.7 million. For purposes of calculating the fixed charge coverage ratio, fixed charges includes consolidated interest expense less interest income and any cash dividends paid on preferred stock (other than amounts eliminated in consolidation). For purposes of calculating the total first priority secured leverage ratio and the consolidated leverage ratio, the amounts of first priority senior secured debt and consolidated total debt, respectively, are reduced by the amount of unrestricted cash on hand. The covenants that provide for the fixed charge coverage ratio, total first priority secured leverage ratio, and consolidated leverage ratio described in this paragraph are not maintenance covenants.