U.S. Bankruptcy Judge A. Benjamin Goldgar has appointed 68-year-old Richard Davis as an independent examiner in the bankruptcy case of Caesars Entertainment Operating Company CEOC. Davis was formerly a Watergate prosecutor, and, as an assistant secretary of the Treasury Department, was involved in efforts to secure the release of Americans during the 1979 Iran hostage crisis.
Davis will now be in charge of investigating transactions made by CEOC, the largest operating unit of Caesars Entertainment, leading up to debt restructuring negotiations with first-lien bondholders. Those negotiations, which lasted four months, led to the restructuring plan currently before the court. If approved, the plan would shave $10 billion in debt from CEOC’s $18 billion load.
The transactions are at the core of two lawsuits. They are being challenged by lower-level creditors who claim they were shut out of the negotiations and that the transactions, which placed major Caesars properties including Planet Hollywood into a real-estate investment trust, were an illegal ploy to avoid paying some $5 billion in second-lien bonds.
According to a report in the Associated Press, Goldgar joked about the complexity of the case after naming Davis. “You game for this?” Goldgar asked, smiling. When Davis nodded, the judge said, “You’re in!”
CEOC’s $18 billion in debt is part of Caesars Entertainment’s industry-topping $25 billion debt load, the result of a $30 billion buyout of the operator in 2008 by private-equity firms Apollo Global Management and TPG Capital Management.
Under federal bankruptcy rules, CEOC must pay all expenses associated with Davis’ investigation of the transactions. Davis must file reports to the court every 45 days. According to court records, Davis is responsible for probing the transactions for “any apparent self-dealing or conflicts of interest” involving CEOC.
According to the AP report, Davis will charge $850 an hour, a $100 discount of his normal rate. (He also served as an investigator in the high-profile bankruptcy cases of Enron and Lehman Brothers.)
Meanwhile, in Nevada, the Gaming Control Board heard testimony about more than 60 former executives who will now lose more than $30 million in pensions. Chairman Tony Alamo rejected the excuse that the company’s deal to take the company privet in 2008 was “ill timed.”
“Everyone throws the economy under the bus,” said Alamo. “Was this absentee supervision? Was it management? Was it mismanagement?”
Caesars General Counsel Tim Donovan apologized to one of those affected, former casino host Kenneth Ng-Houng.
“I understand your issue and I am very sympathetic to your issue,” he said.
But Caesars could not have continued the payments, says Donovan, because they would have had to been approved by a bankruptcy court, a very unlikely result, so Caesars did not even ask.
Commissioners discussed forcing Caesars to make the payments, but concluded it would only further complicate the company’s emergence from bankruptcy.
“I’m stuck in the middle,” said Alamo.
