Caesars was soon groaning under around $18 billion in debt. The Las Vegas-based chain refinanced debt and extended maturities on borrowings in a bid to keep creditors at bay in the hopes that the business would recover, according to a 1,787-page report in March by an independent examiner, former Watergate prosecutor Richard Davis.
But four years after the buyout, the casinos continued to struggle. At this point, Davis said the private equity firms began exploring transfers of hotels and casinos within the Caesars corporate family to try to protect their investment in the event of a bankruptcy.
Apollo has a reputation for savvy restructurings. In the 2014 bankruptcy of Momentive Performance Materials, a chemical company Apollo owns, it used an obscure consumer loan ruling from the U.S. Supreme Court to force new terms on lenders.
"We've seen this with Apollo in the past, in the sense they are willing to really test the legal system," said David Tawil, president of Maglan Capital.
Tawil said other private equity firms would not likely follow the unusually aggressive, high-risk strategy.
"It's definitely not a playbook for the faint of heart," he said.
INTERNAL MEMO
Davis, the examiner, said Apollo's Marc Rowan set out to create new Caesars affiliates, partly funded with around $500 million from the private equity firms, to buy projects from Caesars Entertainment Operating Co Inc, or CEOC, the debt-burdened subsidiary.
"We want to strengthen our hand in a potential restructuring with as little capital outlay as possible," Rowan wrote in an internal October 2012 memo that was intended for TPG, but was published by Davis in his report. "A transaction like this is the only way we see it to 'have our cake and eat it too'."
A Caesars spokesman said Rowan would not comment.