Junior bondholders are owed more than billion
The judge in the bankruptcy case of Caesars Entertainment Operating Company (CEOC), the largest operating unit of Caesars Entertainment, has granted the operator a temporary reprieve from having to deal with several lawsuits from lower-level creditors while attempting to gain approval from many of those same creditors for a restructuring plan that would trim $10 billion from CEOC’s $18 billion in debt.
Caesars officials have been negotiating to secure the approval of at least half of CEOC’s second-lien bondholders of a restructuring plan negotiated with first-lien bondholders in late 2014. Junior creditors said asset transfers prior to CEOC’s January 2015 Chapter 11 bankruptcy filing took major properties out of the operating unit so parent Caesars Entertainment’s owners, private equity firms Apollo Global Management and TPG Capital, could avoid liability on the junior debt.
Several lawsuits targeting a total of more than $11 billion in debt were initially allowed to proceed during the bankruptcy case. An independent examiner appointed by the court agreed with the plaintiffs that the asset transfers were improper, holding that Caesars was on the line for an additional $5.1 billion to the creditors. Caesars Entertainment offered a payment of $4 billion in cash and stock as a settlement, but that was rejected.
Should a judgment against Caesars be issued in some or all of the lawsuits, the parent company would be forced into bankruptcy.
Last week, U.S. Bankruptcy Judge Benjamin Goldgar suspended action on the bondholder lawsuits, filed in Delaware and New York, until August 29. While Caesars had requested more time, the operator now has two months to reach a settlement with the junior bondholders that would stave off the lawsuits.
Goldgar commented that the likelihood of him renewing the freeze on creditor lawsuits after August 29 is “slim,” and warned the operator to make good use of the lifeline he had just thrown them. “There had better be some conversations” with junior creditors, Goldgar said. “You’ve got that time. Use it.”
Goldgar’s ruling came after CEOC lawyers pleaded for more time to “finish the job” of negotiating with its creditors to wrap up a restructuring plan.
The junior creditors who are plaintiffs in the lawsuits are headed by Appaloosa Management and Oaktree Capital Group. They allege the parent used its control of CEOC to strip it of its best hotels and leave the unit bankrupt, which the parent denies. Lawyers for the bondholders had urged Goldgar to allow the lawsuits to proceed to pressure the parent company to negotiate.
The parties will be back before Goldgar this week for a hearing on CEOC’s request to allow creditors to vote on the company’s latest restructuring plan.
