US Senator Harry Reid (D-NV) may be retiring from politics next year but he appears determined to use his remaining time in office to aid one of his home state’s major corporate citizens.
On Monday, The Hill reported that Reid was attempting to pass legislation that would make it easier for casino operator Caesars Entertainment to screw its junior creditors. Reid is seeking to amend the federal Trust Indenture Act of 1939 to allow corporations to conduct out-of-court restructuring of a subsidiary’s debt.
Caesars’ main unit, Caesars Entertainment Operating Co (CEOC), filed for bankruptcy protection in January and has been trying to push a restructuring plan that would shave billions of dollars off its $18b debt. Most of that pain would be borne by junior creditors, who are understandably challenging the legality of CEOC’s proposal.
Much of the legal drama involves Caesars’ reneging on debt commitments and the shuffling of profitable assets out of CEOC into other divisions of the parent company prior to the bankruptcy filing. A federal judge has already declared that these asset transfers likely violated the Trust Indenture Act, which was set up following the Great Depression to prevent corporations from engaging in the kind of “impermissible out-of-court restructuring” Caesars is attempting.
Sen. Richard Shelby (R-AL) attempted to attach the aforementioned amendment to a transportation bill last month but withdrew it after members of the Democratic caucus loudly protested the move. Critics claimed the amendment would unfairly benefit Education Management Corporation (EMC), a for-profit provider of post-secondary education that has been widely slammed for saddling students with significant debts in exchange for diplomas of dubious value.
However, Reid may yet win the day, as he has reportedly rewritten his provision to exclude EMC. Reid wants to include his rewritten provision in the year-end omnibus bill Congress needs to pass by Friday (12) to keep the government in funds for the coming year.
Caesars has warned that if junior creditors can convince federal judges in New York and Delaware that the controversial asset transfers were illegal, the parent company will have to join CEOC in bankruptcy court.