Caesars’ restructuring plan looks shaky after senior creditor lawsuit

caesars-lawsuitCasino operator Caesars Entertainment Corp (CEC) may see its restructuring plans undone after a group representing first-lien creditors filed a $6.34b lawsuit against the company.

On Monday, UMB Bank filed a complaint in Manhattan federal court, accusing CEC of having “shifted their focus from enhancing enterprise value to protecting their equity investment at all costs.”

UMB is the indenture trustee for $6.34b of first-lien notes issued by CEC’s troubled main unit Caesars Entertainment Operating Co. (CEOC). UMB filed a notice of default against Ceasars last November on behalf of creditors holding $1.25b in senior notes.

CEOC filed for bankruptcy in January, citing over $18b in debt. The company has floated a restructuring plan that would see CEOC split into two units – one to manage its casinos, another to own the property on which those casinos stand. The investors who hold the $6.34b in notes overseen by UMB Bank – including Elliott Management Investment Fund – had originally signaled their support for the restructuring plan.

The UMB lawsuit echoes complaints filed by CEOC’s junior creditors, namely that (a) CEC acted improperly by transferring profitable assets out of CEOC to other CEC divisions before placing CEOC under bankruptcy protection, and (b) CEOC’s decision to withdraw loan guarantees represented a violation of the federal Trust Indenture Act of 1939.

A federal court has already declared the asset transfers to be “an impermissible out-of-court restructuring.” US Bankruptcy Judge Benjamin Goldgar has appointed a former Watergate prosecutor to investigate the asset transfers for evidence of impropriety.

CEC has tried to get Goldgar to halt all litigation against the parent company to allow CEOC more time to work out a deal with creditors. Should the lawsuits be allowed to go forward outside the bankruptcy process, CEC fears that CEOC’s first-lien note-holders “undoubtedly will join” the lawsuits against the parent to ensure their claims are heard. Goldgar has promised to rule on CEC’s request to stay the litigation against the parent company by July 22.

Meanwhile, New Jersey gaming regulators have fined CEC’s online arm Caesars Interactive Entertainment (CIE) $15k for improperly targeting customers who’d opted to self-exclude from online gambling.

In a note dated June 2 but only released on Monday, the Division of Gaming Enforcement said CIE New Jersey had (a) allowed self-excluded persons to create internet gaming accounts, (b) sent promotional materials to 231 self-excluded persons, and (c) permitted five self-excluded persons to gamble online.