Earlier bankruptcy date could scuttle reorganization
The judge overseeing the bankruptcy case of Caesars Entertainment Corporation’s largest operating unit launched a hearing last week into a motion by lower-level creditors that the official date of bankruptcy for the operating unit, Caesars Entertainment Operating Company (CEOC), of January 15, 2015 be discarded, and that the court instead recognize the date of the involuntary bankruptcy petition filed against the parent company three days earlier.
Recognition of the January 12 date as the start of the case would have long-reaching implications on Caesars’ plans. First of all, the involuntary petition was filed against the parent company, Caesars Entertainment, and could force the bankruptcy of the parent company and foil the plans of the parent’s owners, private-equity firms Apollo Global Management and TPG Capital, to maintain control of the operator’s most profitable assets, including Las Vegas’ Caesars Palace.
Secondly, approval of the bankruptcy plan of CEOC, which would trim the unit’s $18 billion of debt by $10 billion, depends on approval by the judge and at least half of the second-lien bondholders of the restructuring deal hammered out between Caesars and first-lien creditors late last year. Part of that agreement is a promise of $468 million in cash to the senior creditors.
A January 12 bankruptcy date would place the lower-lien bondholders within the window during which lower-0lien creditors can challenge the cash claim by senior lenders, which means the $468 million in cash would no longer be guaranteed under the agreement. In other words, the entire restructuring plan could become unhinged by the earlier bankruptcy date, possibly forcing the parent into bankruptcy.
A group of junior bondholders, including affiliates of Tennenbaum Capital Partners LLC, Oaktree Capital Management LP and Appaloosa Partners Inc., argues that Caesars was not paying its bills before filing for bankruptcy, which would justify the involuntary case against the company. Caesars missed an interest payment intentionally on its debt in mid-December 2014, but argues that it had a 30-day grace period to make the payment under its agreement with bondholders, putting it out of reach when the bankruptcy was filed on January 15.
Despite the potential significance, U.S. Bankruptcy Judge A. Benjamin Goldgar is in no hurry to resolve the issue of the legal bankruptcy date, saying before testimony began on the motion that it is not “a matter that I will decide 24 hours after” the hearing. Goldgar said he is more concerned with the dispute over pension payments by Caesars under the National Retirement Fund, which is seeking to force the operator to begin funding the pension plan at $6 million a quarter for 20 years. The retirement fund claims the pension is underfunded.
Caesars lawyers claim the bankruptcy date issue is far more important than the pension claims, but failed in their requests for an early ruling on the date.
