Caesars creditor deal under scrutiny

December 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

The last few years has not been a particularly happy period in the history of gambling giant Caesars. In January 2015, the main unit of Caesars Entertainment Corp found itself filing for Chapter 11 bankruptcy protection. As the gambling industry changed, the company struggled to keep up.

Though the company has endured a number of creditor squabbles during its time in bankruptcy, things did seem to be on the up when, in September 2016, the company announced that it was to emerge from Chapter 11 following the signing of a complicated agreement designed to settle a long-running battle between private equity firms Apollo Global Management and TPG Capital – which owned a major stake in Caesars and a host of the firm’s other creditors. Under the agreement, the company’s creditors acquiesced to providing Caesar’s operating company a $5bn contribution to CEOC’s reorganisation plan in exchange for being released from billions of dollars in legal claims.

The deal calls for improved payouts for junior bondholders that had previously fought the plan, while other creditor groups will see the same or smaller payouts than previously proposed in other rejected potential deals. First-lien bank lenders will recover roughly 115 cents on the dollar, roughly one cent less than previously agreed, while first-lien noteholders will still recover about 109 cents on the dollar. Junior creditors will receive about 66 cents on the dollar, up from 27 cents under a previous plan.

Although that settlement seemingly brought about an end to the company’s troubles and was welcomed in most quarters, regulatory concerns raised in the US may have imperilled the agreement and Caesar’s emergence from Chapter 11.

The deal is somewhat complicated by the US bankruptcy code, which dictates that although the majority of Caesar’s creditors have agreed to drop their allegations against the company, any deal struck must adhere to the law, as noted by Denise Delaurent, an attorney with the US Trustee. Accordingly, Ms Delaurent’s office has made it known that they will be reviewing fees and other facets of the deal which released some parties from lawsuits. “From our perspective even if everyone comes to an agreement, it might still violate the law,” she said at a hearing in Illinois.

On 20 October, Caesars Entertainment and a number of the company’s other subsidiaries released a statement announcing the company had agreed to further extended the deadline to finalise certain additional documentation in connection with the company’s reorganisation plan. The extension has been designed to allow the participants additional time to resolve the remaining open items in pursuit of an agreement.

The extension came after news that a hedge fund that holds less than $10m of Caesars Entertainment bonds is pressing claims of wrongdoing by the company’s private equity owners. Should the deal be accepted, Caesar’s reorganisation plan would bring about the end of a heated and contentious period in the company’s history.

Trilogy Capital Management, which holds $9.4m of unsecured notes, has appealed against a Chicago bankruptcy court’s ruling on 5 October which blocked it from seeking damages resulting from a terminated bond guarantee. That termination was part of an alleged sweetheart bond exchange involving Goldman Sachs and three hedge funds. Caesars is hopeful that an agreement will soon be reached with the two remaining holdout creditor groups – Trilogy and the National Retirement Fund. Trilogy’s claim is, in many respects, just a drop in the ocean for Caesars, given that the unit has racked up around $18bn worth of debt. However, the company’s claim does have the potential to derail Caesar’s reorganisation in the long term.

A trial to confirm the bankruptcy is scheduled for January in Chicago and US Bankruptcy Judge Benjamin Goldgar said the reorganisation would likely win court approval if there were not any objections.

Richard Summerfield