Judge to hear arguments April 29
U.S. Bankruptcy Judge Benjamin Goldgar will hear arguments April 29 to determine whether Caesars Entertainment Corp. should have been forced into involuntary bankruptcy under a petition filed by second-tier creditors in January.
The involuntary bankruptcy petition was filed in Delaware against Caesars three days before its largest operating unit, Caesars Entertainment Operating Company (CEOC), filed its voluntary bankruptcy petition on January 15. The creditors are arguing that the parent company’s transactions prior to the filing to move assets to a real-estate investment trust put them out of the reach of debtors and the CEOC bankruptcy.
The Delaware judge determined that the CEOC filing in Chicago would prevail over the involuntary petition. However, he will now require Caesars’ lawyers to provide the reasons for not agreeing to the involuntary bankruptcy, and to show that it properly paid debts as they came due. In December, Caesars elected to miss its scheduled interest payment on the second-lien notes.
In a filing last week, the official Committee of Unsecured Creditors argued that the Delaware petition should prevail. “To carry out its statutory duties to its estate, CEOC must consent to the involuntary petition and thereby preserve the estate’s ability to avoid the lien it granted against cash less than 90 days before the filing of the involuntary petition,” the motion said. “If it does not, CEOC’s estate loses approximately $200 million to $500 million in cash that is otherwise available for the benefit of unsecured claimholders.
“CEOC recognizes the likely reason the involuntary petitioners filed the involuntary petition is ‘to preserve potential preference claims related to liens on certain cash that CEOC perfected in mid-October.’ Incredibly, CEOC never explains why its statutory duties to preserve such preference claims for the benefit of its estate should be ignored, although, CEOC is clearly acting under the control of its shareholders who get released and receive favorable settlements of their affiliates’ avoidance action liabilities if a Chapter 11 plan based on a restructuring support agreement is confirmed.
“CEOC is neither allowed, nor empowered, to waive that defense in its voluntary Chapter 11 case… To add insult to injury, CEOC is retaining its right to claim it is using unencumbered cash to pay for its attempt to forfeit its avoidance action that would create more unencumbered cash.”
The committee of unsecured creditors represents debtors who sued the operator over Caesars’ unilateral cancellation of the guarantee on some of the lower-level debt. A New York judge held for the plaintiffs, calling the move “an impermissible out-of-court debt restructuring achieved through collective action.”
The restructuring plan now before Goldgar, the result of four months of negotiations between Caesars and its senior bondholders, would trim $10 billion in debt from the operator’s industry-high $25 billion debt load. Under the plan, the first-lien noteholders would recover the vast majority of their investments.
