U.S. Senator Harry Reid, the Senate Democratic minority leader who will retire from politics in January, is attempting to give a parting gift to one of his state’s largest corporate citizens, Caesars Entertainment.
According to a report in The Hill, Reid is proposing to amend the Trust Indenture Act of 1939 to allow corporations to conduct out-of-court restructuring of a subsidiary’s debt. Caesars, of course, is currently slogging through the U.S. bankruptcy court process, struggling to gain court approval of a restructuring plan for its largest operating unit that was negotiated privately last year with first-lien creditors, to the protest and disadvantage of lower-level creditors.
Junior creditors are challenging the legality of transactions Caesars completed prior to the unit, Caesars Entertainment Operating Company (CEOC), filing for Chapter 11 U.S. Bankruptcy protection last January 15—transactions that moved key assets out of CEOC, allegedly to protect them from claims by lower-level creditors not part of the restructuring deal.
A federal judge in a lawsuit from junior creditors has already deemed the transactions illegal as an “impermissible out-of-court restructuring,” citing the 1939 law as precedent. Reid is attempting to change the law to preserve Caesars’ move, proposing to attach the amendment to the year-end omnibus budget bill Congress must pass to keep the government operating.
It was unclear at press time whether Reid’s maneuver will succeed. An attempt to attach a similar amendment to a transportation bill last month was withdrawn under heavy protest from Reid’s own party.
And the latest move is drawing protest as well. “This is about screwing pension funds to help private equity firms,” complained a Democratic aide anonymously to Huffington Post.
CEOC, which must report earnings information monthly while under Chapter 11 protection, reported net profit of $23.1 million in October.
