Caesars Entertainment’s largest operating unit, Caesars Entertainment Operating Company (CEOC), formally filed its restructuring and Chapter 11 exit plan last week with the U.S. Bankruptcy Court in Chicago.
The plan is the result of four months of negotiations between Caesars and first-lien creditors. If approved, it would eliminate $10 billion of the $18 billion in debt carried by CEOC. It is expected to take as long as a year for approval or rejection by U.S. Bankruptcy Judge Benjamin Goldgar.
Under the plan, CEOC would be split into two units—a real estate investment trust (REIT) that would own CEOC properties and an operating company that would lease and manage the casino resorts. Among the 38 properties in 14 states that are part of CEOC are Planet Hollywood in Las Vegas and Horseshoe Baltimore. The parent company’s flagship Caesars Palace property is not part of the unit.
“The debtors believe this structure materially improves stakeholder recoveries versus a more traditional ‘stand-alone’ restructuring,” the company said in a court filing.
Creation of the REIT to own the properties creates tax advantages that will result in first-lien creditors recovering the majority of their investment. In exchange for their debt, the noteholders would own the operating company when it exits Chapter 11 protection, and would own 70 percent of the property company, with junior creditors getting the rest.
Those junior creditors are plaintiffs in lawsuits that allege Caesars Entertainment illegally transferred CEOC of its best properties into a separate REIT, putting them out of reach of the second-lien bondholders and leaving the parent unable to finance the debt. Caesars has defended the transfers as proper.
Last week, a trustee for $750 million in junior notes sued parent Caesars Entertainment in Manhattan federal court, seeking to enforce the parent’s guarantee of notes and seeking full repayment plus damages. The company says it exercised a valid contract option when eliminating repayment guarantees prior to CEOC filing its Chapter 11 bankruptcy protection in January.
Caesars has struggled with debt since it was taken private in 2008 by Apollo Global Management and TPG Capital for $30.7 billion.
