Casino operator Caesars Entertainment got a belated Christmas present via a procedural victory in its ongoing court fight with some of its junior creditors.
On Tuesday, New York US District Judge Shira Scheindlin (pictured) ruled against junior creditors’ request for a quick ruling on their lawsuit alleging that Caesars improperly reneged on its debt guarantees. In a 31-page opinion, Scheindlin said there were material disputes surrounding the parties’ claims that would only be resolved by a trial.
In May 2014, Caesars announced that it had sold 5% of its main unit, Caesars Entertainment Operating Co (CEOC), to undisclosed institutional investors. Caesars maintained that the fine print on the bondholder agreements stipulated that if Caesars didn’t hold 100% of the equity in CEOC, the parent company was no longer obligated to honor guarantees worth billions of dollars to junior creditors.
Scheindlin’s ruling affects $750m of that debt held by MeehanCombs Global Credit Opportunities Funds and Frederick Barton Danner. In August, Scheindlin made a similar ruling on requests for a quick ruling on lawsuits brought by other junior creditors who were also screwed by Caesars’ sleight of hand. Still more suits are awaiting their own rulings.
CEOC filed for bankruptcy protection in January, citing over $18b in long-term debt. Caesars has proposed a restructuring plan that would cut that debt in half, with most of the pain being borne by junior creditors, who have gone to court to scuttle this restructuring.
Caesars has warned that it too will be forced to file for bankruptcy if the junior creditor suits are allowed to proceed and the creditors win. But in October, the Illinois judge handling CEOC’s bankruptcy said Caesars couldn’t put off dealing with these lawsuits while CEOC’s restructuring was underway.
But Caesars hasn’t given up trying to forestall its fiscal Armageddon. On Monday, Caesars filed papers asking the courts to stay the MeehanCombs suit until 60 days after the bankruptcy court-appointed examiner finishes his investigation of Caesars’ controversial asset transfers, which are the subject of still more legal actions. Independent examiner Richard Davis isn’t expected to deliver his report until early in 2016.
It’s anyone’s guess as to how a trial might play out, but Judge Scheindlin has hinted in earlier rulings that she viewed Caesars’ asset juggling as “exactly” the type of “impermissible out of court restructuring” forbidden by the federal Trust Indenture Act (TIA) of 1939. Shortly before Christmas, Caesars had enlisted the help of Nevada Sen. Harry Reid to amend the TIA in its favor but the move proved unsuccessful.