A U.S. government watchdog agency is questioning the legality of the bankruptcy reorganization plan reached by Caesars Entertainment. Denise DeLaurent, an attorney for the federal U.S. Trustee agency, said in court last week that her office is reviewing “fees and aspects of the deal that released some parties from lawsuits.”
In late summer, Caesars Entertainment finally reached an agreement with the majority of the junior creditors to its largest operating unit, Caesars Entertainment Operating Company (CEOC), on a reorganization plan initiated with CEOC’s January 2015 bankruptcy filing. Junior creditors brought lawsuits against Caesars Entertainment after the filing, accusing the parent company of stripping CEOC of valuable assets including the Linq and Planet Hollywood, moving them into a real-estate investment trust prior to the bankruptcy filing to put them out of reach of creditors.
An independent examiner appointed by U.S. Bankruptcy Judge A. Benjamin Goldgar agreed with the plaintiffs that the pre-bankruptcy transactions were improper moves by Caesars Entertainment principals Apollo Global Management and TPG Capital to protect the assets from creditors. Meanwhile, CEOC reached agreement with its first-lien creditors on a reorganization plan that would eliminate $18 billion of debt.
Those first-lien creditors will recover nearly 90 percent of their investments under the reorganization plan. Caesars, faced with a requirement that a majority of lower-level creditors must approve the plan for it to be validated by the court—and Goldgar’s decision that the creditor lawsuits may proceed before the bankruptcy case ends—entered intense negotiations with lower-level creditors, reaching agreement with all but one by contributing $5 billion to reimburse them for two-thirds of their investments.
As part of the deal, the creditors agreed to drop all lawsuits against CEOC.
The lone holdout against receiving 66 cents on the dollar, Trilogy Capital Management, reached agreement with Caesars late last week on its $9.4 million in unsecured notes. The hedge fund had appealed the bankruptcy court ruling approving the deal that prevents further litigation. In a filing with the U.S. District Court in Chicago, Trilogy and the operator said they had reached a consensual resolution to their dispute, and asked the court to cancel a hearing that had been scheduled for December.
A trial to confirm the bankruptcy is scheduled for January and Goldgar indicated the reorganization will win approval absent any further objections. If the U.S. Trustee agency finds the deal to be illegal, the federal government could appeal the bankruptcy ruling.
