Good News, Bad News for Caesars

A U.S. bankruptcy judge has given Caesars Entertainment until November to submit a reorganization plan for its largest unit, but a District Court judge’s ruling could unravel part of the plan.

Judge: Disputed Repayment Guarantee Not Protected by Lawsuit

Caesars Entertainment now has several months to complete and submit a reorganization plan to U.S. Bankruptcy Judge A. Benjamin Goldgar, but a ruling last week in one of the lawsuits filed by creditors against the operator could be a first salvo in unraveling the restructuring negotiated between Caesars and first-lien creditors.

Goldgar last week granted Caesars’ request to extend the deadline for submitting the Chapter 11 reorganization plan of its largest unit, Caesars Entertainment Operating Company (CEOC). The operator now has until November 15 to submit a reorganization plan resulting from four months of negotiations late last year with senior creditors.

In making his ruling, Goldgar agreed with Caesars’ argument that the complexity of the case warranted extending the deadline for the restructuring plan, originally May 15. “The sheer mass weight, volume and complication here is extraordinary,” Goldgar said in a hearing in Chicago bankruptcy plan. “The debtors have a plan,” Goldgar said. “We don’t know whether it is the plan.”

The negotiated plan would slice CEOC’s debt from $18 billion to around $8 billion, with senior-level creditors recovering the majority of their investments. It would split CEOC into two entities, one a real-estate investment trust. The plan, however, has been the subject of lawsuits from lower-level creditors who say they were left out of the negotiations because of a plan by Caesars’ private-equity owners, Apollo Global Management LLC and TPG Capital, to avoid payment on second-lien bonds.

The lawsuits are centered on several transactions the operator made to move valuable assets such as Planet Hollywood, Caesars Atlantic City and Bally’s Atlantic City into a real-estate investment trust, which the plaintiffs paint as illegal moves with the specific intent of putting the debt on those assets out of reach of creditors.

One of the lawsuits has targeted Caesars’ refusal last December to make an interest payment on the second-lien debt, and its unilateral cancellation of a payment guarantee the plaintiffs claim was part of the contract—a point Caesars denies.

Caesars took the December action in anticipation of the January 15 Chapter 11 filing of CEOC, its attorneys taking the position the filing would protect the operator from lawsuits involving the restructuring.

Last week, U.S. District Judge Shira Scheindlin in Manhattan ruled that Caesars Entertainment is not automatically immune from lawsuits because of the bankruptcy of its largest unit, and that the bankruptcy trustee can ask her to rule on parts of the case without first holding a trial.

Stephen Cohen, a spokesman for Caesars Entertainment, reiterated in an emailed statement to Bloomberg the operator’s position that the repayment guarantee on the debt was properly terminated. “As we have repeatedly argued in court, the parent guarantee was validly terminated in accordance with the terms of the indentures,” he said.

Should Scheindlin hold that the disputed guarantee was illegally terminated, it may force Caesars to negotiate with its lower-level bondholders to repay $750 million in debt. The precedent, moreover, could lead to other issues in lawsuits by lower-level creditors, such as the transactions that were vital to the restructuring plan, being ruled on outside of the CEOC bankruptcy case.

Bloomberg cited anonymous sources last week in reporting that Caesars and its advisers have set multiple meetings with junior creditor groups as well as a more senior secured creditor group.

Meanwhile, Caesars attorneys tried to convince Goldgar to put a hold on the creditor lawsuits until the bankruptcy case is over. Caesars says the guarantees of the operating unit’s debt were properly voided, and the asset transfers were proper.