U.S. Senator Harry Reid has withdrawn his amendment to an omnibus spending bill that would amend a 1939 law—the result being to help Caesars secure U.S. Bankruptcy Court approval of a restructuring plan for its largest operating unit, according to a report in the New York Times.
Reid, the Democratic minority leader who is retiring in January, had introduced an amendment to the Trust Indenture Act of 1939 to allow corporations to conduct out-of-court restructuring, attaching it to the spending bill needed to avert a shutdown of the federal government. The bankruptcy plan of Caesars Entertainment Operating Company (CEOC), negotiated late last year with senior-level bondholders to the disadvantage of junior creditors, is dependent on several transactions that a judge in a separate creditor lawsuit has already deemed as an illegal out-of-court restructuring plan under the 1939 law.
Reid’s amendment would have changed the 1939 law essentially to make those transactions legal under the statute. The transactions in question moved key assets out of CEOC, which junior creditors claim was done to protect them from seizure under the operator’s subsequent bankruptcy.
The move was opposed by creditors who collectively hold around $5.4 billion in debt. CEOC’s restructuring plan would shave $10 billion from the unit’s $18 billion in debt, and by a
group of 18 legal scholars, who sent a letter last week to congressional leaders including Reid criticizing a plan to change a longstanding law with no public debate.
“Several of us believe that the (law)should be amended, but not in the way proposed,” the letter read. “Any amendment of the law) should take place only after legislative hearings and opportunity for public comment… There have been no hearings on the matter, no opportunity to hear from a diverse group of experts or the public, and no attempt to establish a legislative record.”
Reid abandoned the move despite a flurry of activity from Caesars lobbyists. Should the transactions be declared illegal in the final decision of the courts in the bondholder lawsuits to be heard next year, the parent Caesars Entertainment, owned by hedge funds Apollo Global Management and TPG Capital, could be forced into Chapter 11 bankruptcy itself—an outcome the transactions were designed to avoid.
