A new wrinkle in Caesars’ contentious bankruptcy saga finds the company’s debt-swamped operations subsidiary looking to steal the legal fire of its junior creditors by suing its own parent company, Caesars Entertainment, and Caesars Entertainment’s private-equity owners before those same creditors do.
The junior bondholders accuse Caesars Entertainment and Apollo Global Management and TPG Capital of stripping the subsidiary, Caesars Entertainment Operating Co., of its most valuable gaming assets before placing it in Chapter 11 reorganization last January with $18 billion of debt.
By suing on its own, observers say, CEOC is attempting to control the litigation process and possibly avoid court action on the bondholders’ claims. CEOC was expected last week to ask U.S. Bankruptcy Judge A. Benjamin Goldgar in Chicago to cancel hearings on whether the dissident bondholders should be allowed to pursue their claims in his court.
Meanwhile, a mediator has reported progress in settlement talks between the bondholders and Caesars Entertainment that could eliminate the legal challenges threatening the Las Vegas-based casino giant. A committee representing bondholders reportedly has agreed to a delay in their request to sue.
Under the reorganization plan crafted by Caesars Entertainment CEOC would be split into a real estate investment trust to own its hotels and casinos and an operating company to hold the gambling licenses and run the casinos.
CEOC’s senior bondholders, who are owed about $6.35 billion, would get all the stock in the property company, $2 billion in cash, almost $1.9 billion in new debt and nearly 16 percent of the equity of the parent company. Creditors who hold $5.35 billion in bank loans would get $3.2 billion in cash, $2.2 billion in new debt and 5 percent of the parent.
But one of the disputes preventing acceptance of the plan is whether Apollo and TPG, through their ownership of Caesars Entertainment, are contributing enough to settle junior lenders’ claims.
CEC has offered these lenders a combination of cash, ownership and new debt it says is worth about $4 billion. But the bondholders want more. They claim that CEC, at the direction of its owners, divided the business into a profitable “good Caesars” with few debts and a “bad Caesars” that was rushed into bankruptcy.
A court-appointed examiner in March backed many of their claims and said they might collect as much as $5.1 billion if they sued and won.
Caesars has denied their allegations and vows to prove its actions were a legitimate attempt to restructure CEOC.
However, in its lawsuit, CEOC repeats almost all those accusations, but omits claims against current employees, arguing that they would prompt questions from gambling regulators that could interfere with operations.
