Tentative agreements reached with some high-level creditors
Caesars Entertainment last week said its main subsidiary, Caesars Entertainment Operating Company or CEOC, will file for bankruptcy in mid-January. The move had been expected and comes after months of talks with creditors of CEOC and the company’s other subsidiaries.
The company said it would split into two companies, a real estate investment trust (REIT) that owns the properties and another that operates them under a lease deal. CEO Gary Loveman said the structure will create better cash flow and eliminate old debt. The prepackaged bankruptcy is slated for January 17. Loveman said it will be business as usual at all Caesars’ properties and with the Caesars’ Total Rewards customer loyalty program.
CEOC holds $18.4 billion of the operator’s $25 billion in debt.
Documents made public last week reveal that, to help raise cash for the restructuring effort, Caesars has proposed mortgaging its flagship Las Vegas Strip property Caesars Palace to raise $2.6 billion. As of September 30, the company had $1.5 billion in cash on hand, according to SEC filings.
Some first-lien bondholders were not satisfied. Representatives of Caesars’ highest-ranked lenders, including KKR&Co. Franklin Resources Inc. and Blackrock, walked out of the confidential negotiations, according to a Bloomberg report citing confidential sources close to the investigation.
Caesars officials indicated the operator will try to bring the top banks back into the negotiations, and a Caesars spokesman told Bloomberg that the overall talks are making “substantial progress toward an agreement.”
“The company remains in active discussions with creditors in an effort to reach an agreement in the near term,” said Caesars spokesman Stephen Cohen.
The latest snag in negotiations, and the proposed Caesars Palace mortgage, were revealed publicly by the group of first-lien bank lenders after a confidentiality agreement expired. The group said in a statement that “oral agreement in principle with the company on certain material economic terms” for the prepackaged bankruptcy had been reached, contingent upon the company reaching an agreement on the same terms with the other group of first-lien bondholders engaged in discussions with the operator.
Second-lien bondholders, meanwhile, are awaiting ruling in two separate lawsuits against Caesars, one seeking immediate receivership and the other seeking damages related to the lower-level creditors being left out of the negotiations. The lawsuits claim Caesars illegally moved assets to protect major properties from seizure in a bankruptcy.
Some of those creditors were due a $223 million interest payment last Monday. Caesars skipped the payment—“elected not to pay” is the term used in an SEC filing—which was due on second-tier debt covering CEOC. The payment has a 30-day grace period. Should restructuring talks fail during that period, Caesars could elect to make the interest payment to avoid a default.
Analysts say missing the interest payment is the first step toward the prepackaged Chapter 11 bankruptcy.
Caesars is trying to wrap up negotiations to enable the prepackaged bankruptcy before the lawsuits come to trial—which could result in an order that CEOC go into receivership. A hearing is expected in mid-January on Caesars’ motion for dismissal of the second lawsuit, filed in Delaware. Caesars asked for a dismissal based on an agreement that it say requires all such cases to be heard in New York. The prepackaged bankruptcy would automatically halt the lawsuit.
