Faced with the possibility of joining its largest subsidiary in U.S. Bankruptcy Court, Caesars Entertainment is challenging a court ruling it fears will put an end to out-of-court debt restructurings.
The Las Vegas-based casino giant wants to appeal U.S. District Judge Shira Scheindlin’s finding that companies cannot impose changes to bond terms that leave creditors with no way to collect, according to a Bloomberg report. Caesars claims Scheindlin set too high a standard, in effect, nullifying restructurings that abandon bond repayment pledges.
The battle stems from a lawsuit winding its way through the Manhattan court, where bondholders claim Caesars violated the U.S. Trust Indenture Act by scrapping a repayment pledge as part of an earlier restructuring. Caesars argues that its contract with bondholders, known as an indenture, allowed it to walk away from a promise to guarantee payment on $7 billion in debt under certain circumstances.
The debt in dispute is owed by Caesars’s main operating unit, Caesars Entertainment Operating Company, which in January filed for protection under Chapter 11 of the U.S. Bankruptcy Code owing some $18 billion to banks and bondholders.
Although Caesars guaranteed repayment when the bonds were issued, the company also added language to the indentures allowing removal of that guarantee, which bondholders argue makes it impossible for them to collect.
Scheindlin has twice ruled that Caesars may have violated federal law by abandoning the pledge and has given both sides until the end of September to gather evidence to bolster their cases before holding a hearing to decide.
Caesars, however, is seeking permission from the U.S. Court of Appeals to challenge her rulings.
Bankruptcy lawyers are watching the case closely along with a similar dispute already before the appeals court in Manhattan. In both cases, lower court judges backed an interpretation of federal law that gives more protection to bondholders fighting out-of-court restructurings, according to a report by bankruptcy lawyers Lisa Schweitzer and Luke Barefoot.
The rulings “could embolden holdout bondholders to force, or threaten to force,” companies into bankruptcy instead, they wrote.
In an unrelated case, the Nevada Gaming Control Board has fined the company’s Caesars Palace flagship on the Las Vegas Strip $1.5 million for numerous lapses in its anti-money laundering controls.
The penalty was imposed on the heels of an $8 million civil settlement Caesars Palace concluded with federal authorities for repeated violations of the Bank Secrecy Act. The U.S. Treasury Department’s Financial Crimes Enforcement Network said the resort failed to adequately monitor transactions coming from Asia through its branch offices for suspicious activity, such as large wire transfers. FinCen found the property had failed to file more than 100 suspicious transaction activity reports related to gambling in its private high-roller rooms during a three-month period in 2012.
In the past few years, FinCen has focused on anti-money laundering policies and procedures in the gaming industry and has criticized casino companies for not sharing more information across their business units. In August 2013, Las Vegas Sands reached a settlement with federal prosecutors and paid $47.4 million to avoid criminal charges in connection with allegations of money laundering activities at The Venetian in 2006 and 2007.
“It remains very important that there is not even the appearance that criminal or corruptive elements have any influence over gaming in Nevada,” the Gaming Control Board stated in its complaint. “This includes that it must not even appear that such elements are able to use a licensee to circumvent important federal laws in place regarding money laundering and suspicious activity reporting.”
Caesars Palace is the only Las Vegas casino included in CEOC’s Chapter 11 reorganization.
