Struggling casino operator Caesars Entertainment Corporation (CEC) will likely learn on Wednesday whether its parent company will be dragged into the bankruptcy proceedings afflicting its main unit.
CEC put its main unit Caesars Entertainment Operating Co (CEOC) into Chapter 11 in January, citing $18.4b in long-term debt. CEC has proposed a restructuring plan that would see CEOC split into a casino operator and a real estate investment trust (REIT).
The majority of CEOC’s senior creditors have signed on with the REIT proposal but junior creditors – who hold over $5b worth of CEOC’s debt but were slated to receive pennies on the dollar after CEC reneged on debt obligations – were understandably less enthused.
Late on Monday, CEC signaled that it had convinced a number of hedge funds – which Bloomberg News said included Paulson & Co, Canyon Partners and Soros Fund Management – holding around 30% of CEOC’s second-lien debt to sign on to the restructuring plan.
In a filing with the Securities Exchange Commission, CEC said it had agreed to provide these cooperating junior creditors with pro-rated slices of two sets of $200m in CEC convertible debt “in consideration for forbearing in respect to certain alleged defaults.”
The cooperating junior creditors would also receive a 5% equity stake in the REIT plus the option to purchase a minimum of 2.5% of the REIT shares given to CEOC’s first-lien creditors. To further sweeten the pot, CEC announced it would shuffle its Harrah’s New Orleans and Harrah’s Laughlin properties from their current home under the Caesars Acquisition Company (CACQ) banner into the REIT.
WILL THE JUDGE BUY IT?
CEC is still a long way from garnering the support of the two-thirds of junior creditors who’d have to agree to play ball for the REIT plan to go ahead. But CEC appears to be hoping that the mere suggestion of forward progress will help convince US Bankruptcy Court Judge Benjamin Goldgar that further progress can be made if CEC is given more time to negotiate.
Goldgar is presiding over a hearing on Wednesday to determine whether lawsuits brought by junior creditors can continue in parallel with the Chapter 11 proceedings. CEC has warned that the parent company – which is not subject to the bankruptcy proceedings – could be dragged into the swamp if the lawsuits filed in other states are allowed to proceed.
The lawsuits involve the controversial asset shell game that preceded the Chapter 11 filing. Junior creditors (and some senior creditors) have accused CEC of shifting its more profitable assets out of CEOC and into other divisions in order to shield these assets from creditors’ clutches. In January, a US District Court characterized these asset transfers as an “impermissible out-of-court restructuring” and Goldgar has appointed a former Watergate prosecutor to investigate the transfers for evidence of hanky panky on behalf of CEC.
On Tuesday, the Associated Press reported that CEOC’s bankruptcy had so far cost the parent company almost $47m in professional fees and expenses. The total represents around four-and-one-half months of bills from lawyers, financial advisers, consultants and the like. One law firm charged CEC over $16k just to prepare its bill. Wait till they get mine for having to follow this cockamamie story.
