Plan would give control to creditors
Caesars Entertainment Corporation officials say they have reached an “amended restructuring support agreement” with its top holders of the more than $18 billion in long-term debt carried by its bankrupt largest unit, Caesars Entertainment Operating Company (CEOC). The debt is the bulk of Caesars Entertainment’s industry-high $22.8 billion in long-term debt.
The amended agreement reaffirms support of CEOC’s largest creditors, according to a report in the Las Vegas Review-Journal. The company officials did not reveal any amendments made to the original restructuring plan, which was negotiated over four months late last year with first-lien bondholders.
Caesars’ deal with top creditors would slash $10 billion of CEOC’s long-term debt. However, the company still needs to get a good portion of its second-lien bondholders—many of whom are plaintiffs in four lawsuits claiming the restructuring illegally closes them out—for the restructuring to be approved by U.S. Bankruptcy Judge Benjamin A. Goldgar, and for CEOC to emerge from bankruptcy.
The company announced two weeks ago that it has come to an agreement with some of those 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.
The amended restructuring plan, which CEOC filed last week with the Securities and Exchange Commission, envisions converting CEOC into a real state investment trust. The division, which controls Caesars Palace, Caesars Atlantic City, Harrah’s Reno and more than a dozen regional properties, would be split in two—a REIT owning the real estate and buildings and an operating company leasing back the casinos.
According to the SEC filing, creditors will control the REIT’s board of directors. The operating company would pay the REIT $165 million in annual rent for Caesars Palace and $475 million per year in rent for all the other casinos combined. Both leases have escalator clauses after seven years that could increase operating company payments to the REIT.
Meanwhile, Caesars lost its bid to hold back the lawsuits while the bankruptcy case is in court. Goldgar rejected the operator’s motion for a quick answer to its appeal of his decision that the lawsuits may proceed while the CEOC bankruptcy case is active.
The lawsuits challenge asset transfers that were essential in cobbling together the agreement with CEOC first-lien bondholders, and Caesars’ cancellation of repayment guarantees on lower-level loans. Should the plaintiffs in those lawsuits succeed, the parent Caesars Entertainment could be forced into bankruptcy because of failure to pay interest on all the loans.
The ongoing bankruptcy saga did not hurt second-quarter revenues for Caesars Entertainment. The company reported that its net revenue increased 17.4 percent for the quarter, with net income of $15 million, or 10 cents per share, compared to a net loss a year ago.
“We are focused on growing the business, continually improving efficiency and expanding margins,” said Caesars Entertainment CEO Mark Frissora, in his first earnings report since taking the CEO helm from Chairman Gary Loveman July 1. “These results demonstrate our ability to deliver growth while driving operational efficiencies.”
