Attorneys for a block of lower-tier creditors of Caesars Entertainment Corporation wasted little time in resuming their lawsuit following a ruling by the judge in the bankruptcy case of the operator’s largest unit, Caesars Entertainment Operating Company (CEOC), ruled that lawsuits against the parent company can resume while the bankruptcy case drags on.
Attorneys for the plaintiffs in a lawsuit filed in Delaware went right at the heart of their case last week, asking a judge to force a Caesars lawyer to reveal formerly secret details concerning the parent company’s cancellation of a debt guarantee on $7 billion in bonds.
Caesars Entertainment canceled the guarantee on the bonds after choosing to miss an interest payment last December. On January 15, CEOC filed for Chapter 11 bankruptcy protection in a Chicago court. The operator claims that transactions to sell a stake in CEOC and transfer of assets subject to the debts entitled the company to cancel the repayment promise.
The plaintiffs are asking the judge to force Caesars attorney Gregory Ezring to reveal details of an April 2014 presentation to the Caesars board on cancellation of the debt guarantee. Executives that attended the presentation, made by one of Ezring’s associates at the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP, have refused to reveal details on the basis of attorney-client privilege, naming Ezring.
However, the plaintiffs—represented by trustee bank Wilmington Savings Fund Society—claim Caesars sacrificed its attorney-client privilege when Apollo executive David Sambur filed a declaration in court papers using protected information to defend the guarantee cancellation.
According to an October filing unsealed last week at the request of Bloomberg News, the plaintiffs now want the judge to force Ezring to talk. “Time and again, CEC witnesses who were present for that presentation would not provide any information regarding what transpired,” the filing said.
If the cancellation of the debt guarantee is deemed improper, the creditors would be entitled to seek immediate repayment, which would in turn force the parent company, owned by private equity firms Apollo Global Management and TPG Capital, into Chapter 11 bankruptcy. The creditors claim the asset transfers and cancellation of the guarantee were an illegal maneuver to allow Apollo and TPG to stay out of bankruptcy, and to avoid paying back the debt.
Meanwhile, the casinos managed by the bankrupt CEOC reported a net profit of $29.4 million in September, the operator said in securities filing Wednesday.
CEOC is required to file monthly financial reports covering the division’s nearly two dozen casinos. Caesars Palace is the only Strip resort that is part of CEOC, which also includes Caesars Atlantic City and Harrah’s Reno, along with regional resorts.
For the quarter, parent Caesars Entertainment reported revenue of $1.1 billion, up 12.4 percent from the same quarter last year. Including CEOC casinos, the revenue was $2.3 billion, up 5 percent. However, the costs of the bankruptcy were cited in a net loss for 2014 of $908 million. Costs related to the restructuring of CEOC reportedly were $935 million.
Caesars Entertainment CEO Mark Frissora was upbeat about the company’s situation in an investor conference call. “The enterprise had solid fundamental business improvement driven by Las Vegas revenue performance,” he said. “We are confident that our strategy will increase value for our stakeholders over the long term.”
