As Caesars Entertainment continues to negotiate with its senior creditors on notes that would keep its largest operating unit out of bankruptcy, a second group of more junior bondholders has issued a notice that the unit, Caesars Entertainment Operating Company, is in default.
Delaware’s Wilmington Savings Fund Society, a trustee representing holders of $3.7 billion of Caesars;’ 10 percent second-lien notes due December 2018, objected when the operator pledged collateral to senior creditors that would protect their investment, including offering proceeds from lawsuits bought against it. The second-lien bondholders want a similar pledge from the company.
Under the rules of the Securities and Exchange Commission, the default notice gives Caesars 60 days to take action that would avoid a default. The action is meant to force Caesars, struggling to refinance its most senior notes, to negotiate with the junior bondholders as it looks for a way out of a $24.2 billion debt morass that resulted from the leveraged buyout of the operator for $30.7 billion at the height of the recession in 2008 by hedge funds Apollo Global Management LLC and TPG Capital.
The second-lien bonds were trading at 22 cents on the dollar at press time. Holders who own at least 30 percent of the notes “may accelerate the notes upon actual event of default,” according to last week’s SEC filing by the creditors.
A lawsuit filed in August by another group of junior bondholders alleges that Caesars fraudulently moved assets to a new real estate investment trust, a move that would prevent them from recovering their investment. Caesars countersued, saying the group is hampering negotiations that would reduce the staggering overall debt load.