Casino operator Caesars Entertainment has lost its bid to amend a federal law that would have allowed it to ignore creditor lawsuits while restructuring its bankrupt main unit.
On Tuesday, the New York Times reported that Sen. Harry Reid (D-NV) had withdrawn a provision of the federal $1.1 trillion spending bill that would have altered the Trust Indenture Act, a Depression-era measure that dictates what bankrupt companies can and cannot do to get themselves back on their feet.
Last week, world surfaced that Reid was attempting to attach his amendment to the spending bill as a favor to Caesars, one of his home state’s largest employers. Caesars has been attempting to restructure its bankrupt main unit Caesars Entertainment Operating Co (CEOC) since January but junior creditors, who stand to lose billions under Caesars’ plan, have filed lawsuits aimed at stopping this heist dead in its tracks. The amendment would have let Caesars proceed with its plan without regard to the lawsuits.
The amendment first appeared in November, when it was attached to a federal transportation bill. Critics, including Tea Party types and the creditors the bill would end up screwing, raised a sufficiently loud ruckus to get the amendment pulled. But Reid is retiring next November and no longer cares what the electorate thinks of him, so he reattached the measure to the spending bill.
On Monday, a disparate group including asset managers, legal scholars and Tea Party types issued an appeal to Congress to reject Reid’s farewell gift to Caesars. These critics pointed out that Reid’s desire to bail out Caesars would have ramifications far beyond the gaming world and wondered why such sweeping changes were being considered without any public debate.
Caesars is principally owned by two large hedge funds – Apollo Global Management and Texas Pacific Group (TPG) Capital – who loaded up on around $30b in debt to buy Caesars just before the 2008 economic meltdown took the wind out of the US casino industry’s sails.
Faced with billions of dollars in annual interest charges Caesars simply couldn’t afford to go on paying, the hedge funds orchestrated a series of controversial maneuvers, including reneging on billions owed to junior creditors and shuffling CEOC’s profitable assets into other Caesars divisions prior to the Chapter 11 filing.
Caesars has warned that if the creditors prevail in their lawsuits in New York and Delaware, the parent company will also have to declare bankruptcy. The lawsuits won’t be heard until 2016 but a federal judge has previously suggested she’s leaning towards the view that Caesars’ pre-bankruptcy moves violated the Trust Indenture Act.