In the wake of moves by casino giant Caesars Entertainment to defer interest payments on some of its billion debt load, some of the operator’s bondholders are on the warpath, while others are seeking to negotiate.
One group of bondholders has sent Caesars Entertainment Operating Company (CEOC), the subsidiary that carries most of the operator’s debt, a notice of default on outstanding 10 percent coupon bonds due in 2018. The group has sued the operator, asking an Illinois judge to block Caesars from taking out a new $1.75 billion loan to make interest payments on the debt.
The group alleges that transfer of assets including the Cromwell and Quad resorts in Las Vegas to CEOC violated the asset sales covenant with the bondholders, because CEOC did not pay fair market value to the parent company for the assets. The properties are part of the collateral on the notes held by the bondholders.
If the group’s claims are upheld in court, the default could affect senior secure bonds and force enactment of an acceleration clause in the bond contracts that would force Caesars Entertainment into Chapter 11 bankruptcy.
Caesars officials are defending the asset sales of earlier this year. “We believe there’s no legitimate basis to challenge the steps we have taken to improve the long-term financial health of Caesars,” company spokesman Steve Cohen told Bloomberg.
Meanwhile, one of the holders of the senior secured bonds, the Arrowgrass Capital Partners hedge fund, is considering negotiations with Caesars on the $2.1 billion of the notes that are outstanding.
Caesars is burdened by debt from a $30.7 billion leveraged buyout in 2008 led by Apollo Global Management LLC and TPG Capital.
