Creditors seeking probe of asset transactions
Caesars Entertainment last week sold its 20 percent interest in its Ohio casinos to the majority owner, Rock Ohio Ventures, controlled by Dan Gilbert, the founder of Quicken Loans and the owner of the NBA’s Cleveland Cavaliers.
The deal gives Rock Ohio Ventures 100 percent ownership of Horseshoe Cincinnati, the Horseshoe Cleveland and Higbee Building, the Ritz-Carlton in Cleveland and ThistleDown Racino in suburban Cleveland. Rock Ohio will also acquire controlling interest in Turfway Park raceway in Kentucky.
Caesars will continue to manage the two Horseshoe Casinos and Thistledown Racino, with full access to the company’s Total Rewards loyalty system. The press release did not reveal a sale price and Caesars has not yet filed SEC documents related to it.
“We will continue to provide the same high-quality experience and service guests have come to expect and remain committed to our casino investments and the communities where we operate,” Rock Gaming CEO Matt Cullen said in a statement.
Caesars and Rock Ohio Ventures are also partners in the Horseshoe casino in Baltimore, which was not part of this transaction.
Attorneys for Caesars Entertainment Operating Company (CEOC) have asked the judge in the company’s Chapter 11 bankruptcy case to disband a committee set up by the court to represent the interests of second-lien creditors opposing the company’s restructuring plan.
Also last week, CEOC, the largest unit of Caesars Entertainment, is seeking to validate a restructuring plan it hammered out last fall with senior creditors that would reduce the company’s industry-high debt by $10 billion. The panel of second-lien noteholders, comprised largely of hedge funds that have separately sued both CEOC and its parent company, is aggressively opposing the restructuring plan, which the creditors contend leaves them holding the bag for billions in debt.
The committee is one of two formed by the U.S. Justice Department’s bankruptcy-watchdog Office of the U.S. Trustee. Both panels have standing in the case and both are entitled to petition the court to investigate certain aspects of the case. Under federal bankruptcy rules, CEOC is responsible to pay for any such investigations.
The panel filed a motion to investigate Caesars’ transactions moving assets into a real-estate investment trust to prepare for the senior-bond restructuring, which ultimately placed lower-level bonds out of the reach of creditor seizure. It is the exact subject of the creditors’ lawsuits against the operator, which are suspended due to the bankruptcy case.
Caesars wants the judge to disband the creditor panel and fold it into the other committee set up by the DOJ, of unsecured creditors. That second panel represents creditors including suppliers still doing business with Caesars, who presumably do not want to torpedo the operator’s restructuring plan.
Alternatively, the operator is asking the judge to limit how much the panel can spend on legal fees that the operator ultimately will be forced to pay.
“There is simply no justification for such an expense to the estate,” Caesars said in the court filing of the fees, which can run into the tens of millions of dollars. “In fact, a second-lien committee will create needless additional litigation as multiple parties spend estate resources fighting.”
Caesars’ motion to disband the panel came a day after the panel moved to investigate several transactions made by Caesars in the months leading to the restructuring negotiations with senior-level creditors. The panel asked for an order for CEOC to surrender more than 35,000 documents related to an internal investigation into possible misconduct involving those transactions.
“There are numerous pre-petition transactions that must be evaluated to determine whether they give rise to claims and causes of action that could be sources of recovery for creditors,” the second-lien noteholders said in the motion.
Second-lien noteholders have been unsuccessful in efforts to secure an interest payment on their debt the operator skipped in December. Last week, for the second time in as many weeks, Caesars denied a request from Delaware’s Wilmington Savings Fund Society, the bank representing the noteholders, for immediate repayment of $3.68 billion in principal and $185 million in interest.
Caesars dismissed the payment request as “meritless” in light of the bankruptcy proceedings, noting the second-level notes are not under a repayment guarantee by the parent company.
CEOC filed for bankruptcy January 15, seeking to renegotiate $18 billion of its $25 billion debt load. The operator has struggled with debt since it was taken private in 2008 by Apollo Global Management and TPG Capital for $30.7 billion.
Meanwhile, traders with $26.6 billion of credit derivatives tied to Caesars Entertainment Corp. set an initial value of 14.875 cents on the dollar for CEOC bonds at the start of an auction that will determine how much the contracts pay out.
At that price, sellers of the credit-default swaps would need to pay buyers 85.125 cents on the dollar to settle contracts triggered when the casino company put the operating unit into bankruptcy protection.
