Parent company could be forced into bankruptcy
U.S. Bankruptcy Judge A. Benjamin Goldgar has handed Caesars Entertainment a potentially crushing setback in the operator’s efforts to win approval of a bankruptcy restructuring plan for its largest operating unit, Caesars Entertainment Operating Company (CEOC).
Goldgar ruled last week that the lawsuits filed against the company by creditors challenging asset transfers leading to the restructuring plan with first-lien bondholders can go forward while the operator’s bankruptcy case is ongoing.
Caesars had anticipated the bankruptcy filing would nullify the lawsuits. However, Goldgar held that while cases against CEOC would be on hold during the bankruptcy trial, the lawsuits filed against the parent Caesars Entertainment can proceed. Should the cancellation of payment guarantees be overturned, the parent could be forced into bankruptcy court, and the entire restructuring could be affected—with all levels of bondholder debt taken into account. Caesars would not have the funds to pay a multibillion-dollar judgment.
The lawsuits challenge the legality of several transfers of valuable assets such as Planet Hollywood and some Caesars, Harrah’s and Horseshoe properties into a real-estate investment trust and out of reach of creditors in the bankruptcy case. Lower-level bondholders have claimed the moves, which included cancellation of repayment guarantees on some loans, were illegal transfers meant specifically to avoid repaying more than $7 billion in debt.
The restructuring plan on which Goldgar will rule is based on four months of negotiations with top-level bondholders. Those first-lien creditors would recover most of their investments under the plan, and CEOC would eliminate $10 billion of the unit’s $18 billion in debt. Caesars Entertainment’s $24 billion in debt, incurred through its 2008 $30.7 billion buyout by private equity firms Apollo Global Management and TPG Capital, tops the industry.
CEOC officials have continued to negotiate with bondholders in an attempt to gain enough support for its restructuring to allow an exit from Chapter 11 bankruptcy. The company announced last week that it has come to an agreement with a group of second-lien creditors to grant equity in two new companies plus another $200 million worth of convertible notes in exchange for second-lien debt holders agreeing to the restructuring plan and dropping their claims against Caesars.
The company needs at least half of the second-lien debt holders to agree to the restructuring for it to go forward. Second-lien creditors who do not agree to the plan get none of the new notes or equity. The group negotiating with Caesars, including creditors Paulson & Co., Canyon Partners and Soros Fund Management, owns about 30 percent of junior notes that have faced some of the worst losses under the restructuring negotiated by CEOC.
It may be the parent company’s best chance to avoid Chapter 11. “To get another major creditor group on board like the second-liens, you’d be able to get closer to the finish,” said Chris Snow, a gaming-debt analyst at CreditSights Inc. in New York, in an interview with Bloomberg.
After Goldgar’s ruling on the lawsuits, shares in Caesars Entertainment Corp. plunged by more than 50 percent.