A federal judge has halted a lawsuit against Caesars Entertainment by a holdout creditor in the multibillion-dollar bankruptcy reorganization of the casino giant’s main operating subsidiary.
Judge Benjamin Goldgar, sitting in Chicago, said the action could derail a settlement hammered out after months of negotiations between Caesars and bondholders and bank lenders trying to recover their investments in Caesars Entertainment Operating Co., which Caesars placed under the protection of Chapter 11 of the U.S. Bankruptcy Code back in January 2015 buried under some $18 billion of debt.
In return for larger cash payouts and the lion’s share of Caesars’ equity, the majority of CEOC’s junior creditors have agreed to drop billions in legal claims against the parent company. But hedge fund Trilogy Capital Management hasn’t gone along and continues to press its claim that Caesars reneged on pledges to lenders to guarantee CEOC’s debt, which was incurred as a result of a $30 billion leveraged buyout of Harrah’s Entertainment in 2008 that gave private-equity giants Apollo Global Management and TPG Capital control of the 47-casino conglomerate but doomed it to insolvency once the Great Recession hit.
Trilogy is among a host of second-lien bondholders who believed they were getting short shrift from Apollo and TPG in previous recovery offers and were unhappy with moves the parent company had made under Apollo and TPG’s leadership prior to the Chapter 11 filing to transfer CEOC’s better-performing gaming assets into other, financially stable, companies to shelter them from creditor claims.
Now that a settlement has finally been reached Goldgar said an injunction on all remaining litigation against Caesars was necessary to preserve it. The ban could last through January, when the court is scheduled to confirm the plan.
That plan, which now has the approval of a majority of first- and second-lien creditors, will cut more than $10 billion of CEOC’s debt and split it into a casino and hotel operating company and a separate real estate investment trust that will own those gaming and hotel assets.
As part of the agreement, Apollo and TPG will see their stake in Caesars reduced from 60 percent to 16 percent. Creditors will own about 70 percent.
Corporate governance and strategy, management and the ultimate disposition of assets are still being negotiated, according to Reuters, Bloomberg and other news outlets. Sources told Bloomberg that a new board of directors will be constituted to make those determinations.
Trilogy, in the meantime, is appealing Goldgar’s ruling. A hearing in U.S. District Court in Chicago is scheduled for December 5.
