Written by Eileen Appelbaum
If there is one thing the recent presidential election made clear, it is that the 1% have no shame. So it’s no surprise that CEOs are drumming up “fiscal cliff” hysteria to protect their wealth. Their campaign to ‘Fix the Debt’ wants to retain the Bush-era tax cuts for the wealthy and expand tax breaks for corporations while fixing the debt through a Medicare/Medicaid system that “spends considerably less.” But choosing Caesar’s Entertainment CEO Gary Loveman to deliver their message on NPR’s ‘All Things Considered’ demonstrates once again how shameless the very rich are in their contempt for the 99% who depend on Medicare and Medicaid – and for the ‘elites’ who get their news from NPR. As for NPR, let’s give folks there the benefit of the doubt and just say they are clueless.
The CEO campaign sent Loveman to impress upon the rest of us the importance of fixing the debt so CEOs wouldn’t be forced to lay off millions of us and to make sure we understood the necessity of preserving tax breaks for the ‘job creators.’ You might think they would have chosen a CEO who leads a company that has created value for the U.S. economy and jobs for American workers. But you would be wrong. Gary Loveman is the CEO of a company loaded up with debt by private equity that has ripped off its creditors, disappointed its shareholders, and laid off workers.
Loveman was CEO and President of Harrah’s Entertainment (now known as Caesar’s Entertainment Corporation), the world’s largest casino company with 30,440 unionized employees when it was acquired by private equity firms, the Apollo Group and the Texas Pacific Group (TPG) in 2006. The PE firms paid $90 a share to take the company private. By June 2007, the casino company’s long-term debt had more than doubled to $23.9 billion, resulting in an interest bill of $2.1 billion. Piling up debt magnifies private equity’s returns in good economic times, but it raises the risks of default and downsizing for the acquired companies when times are tough. Caesar’s Entertainment struggled under its debt burden when the recession hit. The company cut staff, reduced hours, outsourced jobs and scaled back operations.
Caesars’ creditors were hurt as badly as its workers. According to Caesar Entertainment’s website, “Loveman has led Caesars’ successful debt reduction and liquidity improvement strategies.” In plain English, Caesars stiffed its creditors. Caesars’ high debt burden put the company in grave danger of defaulting, so the company was able to buy back its own debt at pennies on the dollar. In November 2008 its bonds were trading for 20 cents on the dollar. In December 2008, the company exchanged bonds with a face value of $2.2 billion for new ones worth $1.06 billion, meaning that bond holders got a little less than 50 cents on the dollar. Then in April 2009, the company exchanged $5.5 billion of additional bonds for new bonds worth $3.6 billion. So Caesar’s reduced its debt and increased its liquidity under Loveman’s leadership, but at the expense of its creditors who lost a total of $3 billion. The real winners in these deals were Apollo’s investors and its CEO Leon Black, whose returns were boosted by these swaps. As for the casino company, the swaps merely postponed the day of reckoning on its remaining high debt load.
Still in trouble and needing more cash, Caesars’ PE owners decided to sell the company back to the public market. A planned IPO announced In November 2010 that offered shares at $15-$17 per share had to be scrapped due to low investor interest in the money losing, debt-burdened company. In February 2012 the company returned to the public markets, selling shares at the “comical” price of $9 to raise much needed funds. Investors willing to take a chance on Caesars at the bargain basement price of $9 a share have been sorely disappointed – the stock (CZR) closed yesterday (November 14) at $4.54 a share. Far from creating value for the U.S. economy during his tenure as Caesars’ CEO and President, Loveman took a company worth $90 a share down to one worth just $4.54 a share.
Caesars still has $20.8 billion in debt, and some observers think it is quickly approaching a ‘fiscal cliff’ of its own.
It is hard to fathom why Loveman would step forward as the public face of the CEO campaign to ‘fix’ the debt or why that campaign would want him as its spokesperson. Perhaps the answer lies in the fact that Apollo Global Management remains Caesars largest shareholder. Apollo’s CEO, Leon Black, has the distinction of being the CEO among CEOs of publicly traded companies who benefited most in 2011 from the Bush tax cuts. He saved $9.9 million dollars that year.
Eileen Appelbaum is Senior Economist for the Center for Economy and Policy Research. She also writes a regular blog, CEPR Blog, where this post originally appeared.
Photo by PhoCusWright under Creative Commons license.