The hits keep coming in roadblocks to the plan of Caesars Entertainment to restructure the debt of its largest unit, Caesars Entertainment Operating Company (CEOC). The latest setback came March 16 when Chicago Bankruptcy Judge Benjamin Goldgar disqualified the team of financial adviser Melissa Knoll, hired in 2014 to help defeat creditor allegations that the parent company removed key assets from CEOC to protect them from creditors.
In a ruling that only received widespread attention last week due to the imminent deadline for a new restructuring plan, Goldgar said the findings of Knoll’s team were “tainted” by an extramarital affair between Knoll and Caesars Entertainment attorney Vincent Lazar. “She was sleeping with the enemy,” Goldgar wrote. “Because the investigation is tainted in this way, there isn’t any point in pursuing it.”
Knoll’s conclusions from the investigation into the disputed asset transfers, called illegal by a court-appointed investigator, was to be incorporated into a revised bankruptcy plan that was supposed to be submitted April 4.
The removal of Knoll’s report throws another roadblock in front of Caesars as it attempts to secure a restructuring plan for CEOC that would eliminate $10 billion of the unit’s $18 billion in debt. The first-lien bondholders with whom Caesars Entertainment negotiated the restructuring have already requested permission to submit their own restructuring plan, as the negotiated settlement is in danger of falling apart without approval from second-lien creditors.
CEOC officials are still negotiating with the lower-level bondholders, who filed lawsuits that could force the parent Caesars Entertainment and its private hedge-fund owners, Apollo Global Management and TPG Capital, into Chapter 11 bankruptcy.
Those four creditor lawsuits, filed in Manhattan district court, are currently delayed as a new judge, Jed Rakoff, prepares to take the case over from retiring Judge Shira Scheindlin. Meanwhile, Caesars has signed a nondisclosure agreement with various debt holders as part of the start of a mediation process to end its legal disputes with the junior note holders.
