Caesars Entertainment Corp. has reached an agreement with key senior bondholders to restructure the major portion of its stifling .2 billion in debt in a prearranged bankruptcy expected as soon as January, according to a report in Bloomberg News.
According to the report, which cited unnamed sources close to the negotiations, the deal with first-lien bondholders including Paul Singer’s Elliott Management Corp. and Pacific Investment Management Co. would place the Caesars Entertainment Operating Co. unit into Chapter 11 proceedings as soon as January 14.
Caesars has been in talks for two months with primary creditors to restructure $18.3 billion of the $24.2 billion in debt. The proposal reported last week would cover most of the $22.9 billion debt burden taken on as a result of the $30.7 billion buyout of the operator in 2008 by two private hedge funds.
The deal with first-lien creditors will likely continue to be challenged in the courts by lower-level bondholders, who have already filed two lawsuits claiming Caesars’ negotiations with senior bondholders will leave them holding the bag for billions.
Caesars, taken private by Leon Black’s Apollo Global Management and TPG Capital for $30.7 billion in 2008, has lost money every year since 2009. Earlier this year, the company closed its Showboat Casino Hotel in Atlantic City, citing high property taxes.
According to the Bloomberg report, a mid-January bankruptcy filing would assure the senior creditors that they could receive cash pledged by the company last month without being challenged by the second-lien bondholders in bankruptcy proceedings. The cash transfer needs to be done at least 90 days before a Chapter 11 filing.
A January filing also would allow Caesars to avoid a one-time payment of $225 million on the second-lien bonds, which would trigger an involuntary bankruptcy.
“They have to make first-lien creditors believe it’s going to be really safe when they file,” Ronald Mann, a professor at Columbia University Law School, told Bloomberg. “The creditors have a lot of control here. If they can’t get first-lien creditors to go along, they have a real problem.”
The operating unit’s first-lien bonds are all trading at about 75 cents on the dollar. First-lien bondholders have sought to extract a recovery of about 90 cents on the dollar from Caesars Entertainment Operating Co., the sources told Bloomberg. The reorganization proposal will give them a combination of cash, new securities and equity.
Meanwhile, Caesars grew its overall revenue 49.1 percent to $485.8 million in the third quarter, up from $325.8 million in the same period of 2013. The company attributed part of that growth to the August opening of Horseshoe Casino Baltimore, as well as new revenues from its Cromwell boutique hotel and Drai’s nightclub in Las Vegas, and social-gaming revenues from Caesars Interactive.
“Our interactive entertainment business continues to deliver impressive results, primarily from our market leading social and mobile games business,” Mitch Garber, CEO of Caesars Acquisition Co., said in a statement. “We successfully opened Horseshoe Baltimore during the quarter to a welcoming crowd and are excited about the results to date.”
The increased revenues were the bright spot in a third-quarter report that showed an overall loss of $908.1 million. The net loss was 19.3 percent higher than the same period a year ago.
Caesars CEO Gary Loveman, in announcing the quarterly results, took a positive tone. “Our third-quarter results reflect strength in the interactive business, stabilizing trends regionally, and generally good performance in Las Vegas,” Loveman said. “Moving forward, we see several dynamics that bode well for our future, including signs of improvement in regional markets given limited supply growth and greater traction from our investments in hospitality and entertainment offerings across our network.
“We expect progress on these fronts to yield a positive effect on our business, as we continue capital structure initiatives intended to reduce leverage at (Caesars’ operating company).”
Caesars’ stock rose 3.9 percent after the Bloomberg report on the creditor deal.
