Investigator’s Report Key to Caesars Deal

The ultimate fate of Caesars Entertainment’s bankruptcy proceedings involving its largest operating unit could hinge on an investigative report due out today.

The report of the court-appointed investigator into Caesars Entertainment’s disputed asset transfers ahead of the bankruptcy of its largest operating unit is due today, and according to confidential sources cited by the New York Post, Caesars owners Apollo Global Management and TPG Capital will not like the result.

According to the newspaper’s sources, the transfers, which were key to the Chapter 11 bankruptcy reorganization plan negotiated last year between operating unit Caesars Entertainment Operating Company (CEOC) and first-lien creditors, were “done improperly.”

U.S. Bankruptcy Judge A. Benjamin Goldgar ordered the independent investigation of the transactions, which moved four key Caesars properties from CEOC to Caesars Acquisitions, a real-estate investment trust. Several lawsuits from junior creditors allege the transfers were an illegal move by Apollo and TPG to protect valuable properties from creditor action. Thus, the bonds on those properties—amounting to $5 billion in debt—are not part of the Chapter 11 filing CEOC completed on January 15, 2015.

The deal CEOC negotiated with first-lien bondholders address the $18.4 billion in debt of the other properties under CEOC. As negotiated, the restructuring would eliminate around $10 billion of that debt. However, several lower-level creditors, led by Appaloosa Management, are claiming the debt of the transferred properties should be included in the bankruptcy.

Goldgar will use the report to determine whether to approve the CEOC restructuring. Should the asset sales be found to be improper, he could order a new plan be drawn up including the disputed assets—a move that likely would force bankruptcy of Caesars Entertainment, the parent company. It also would force repayment of interest on the second-lien bonds, which Caesars unilaterally halted in December 2014, canceling repayment guarantees on the loans.

After the release of the report, Caesars Entertainment will have 60 days to change CEOC’s reorganization and delay the several pending creditor lawsuits, which target the casino sales and the removal of debt guarantees.

The plan now before Goldgar would split CEOC in two, creating a REIT to own the properties and an operating entity to manage them. However, second-lien creditors have so far refused to approve the plan, and two weeks ago, the first-lien bondholders who are party to the plan requested the right to formulate their own restructuring plan and submit it to the court.

Last week, Goldgar refused the request of creditors to initiate a mediation procedure on the restructuring, with an active or retired bankruptcy judge to render decision. However, local rules that gave judges power to order mediation in his jurisdiction were revoked last month. In answering the creditors that he had no legal jurisdiction to order mediation, Goldgar wryly remarked, “You don’t need my permission. Just click your heels together three times and say, ‘There is no place like mediation.’”

 

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