Caesars Entertainment Corporation, which is in the midst of negotiations with senior bondholders to refinance portions of its staggering billion in debt, was hit with a lawsuit last week filed by a second group of junior bondholders.
It is the third case in a growing legal morass over Caesars’ restructuring efforts. Earlier this year, Caesars exchanged lawsuits with a group of junior bondholders that alleged its deal with senior bondholders to restructure debt was leaving them holding the bag for $1 billion in debt.
The group’s lawsuit claimed that Caesars’ transaction with senior bondholders and another group of unsecured bondholders improperly provided special treatment to one group of bondholders to the detriment of another. Caesars counter-sued, alleging that the junior bondholders were trying to force bankruptcy to torpedo the operator’s negotiations to refinance its long-term debt.
The latest lawsuit is similar to the first, except that it targets the deal Caesars cut with UMB Financial Corporation, the trustee of almost $5 billion in first-lien bonds, to keep the holders of those bonds engaged in negotiations that will delay a potential notice of default. The latest plaintiffs called that a “backroom deal,” in which the company paid the other group a “vast premium” over market rate for the same bonds they hold, making their own investment “effectively worthless.”
“Caesars has engaged in a series of transactions to circumvent its obligations under the notes, indentures and guarantees and to effectively eviscerate plaintiffs’ unconditional right to receive principal and interest,” the investors claimed in a complaint filed in Manhattan federal court.
The plaintiffs own approximately $21 million of the company’s 6.5 percent notes due in 2016 and its 5.75 percent debt due 2017. They attacked Caesars’ alleged effort to amend the bond indentures and its strategy restructure Caesars’ operating unit debt “by transferring out valuable assets and abandoning CEC’s guarantees on the debt, and to leave the disenfranchised noteholders out in the cold.”
The investors are seeking unspecified damages and an order from the court declaring the changes to the bond indentures invalid. Caesars’ only response was a comment by spokesman Stephen Cohen that the lawsuit has “no merit.”
