On Monday, CEC and its Caesars Entertainment Operating Co (CEOC) subsidiary announced a restructuring support agreement with holders of “a significant amount” of CEOC’s second lien debt. About $5.2b of CEOC’s total $18.4b debt is held by junior bondholders.
Coupled with spillover from previous deals with other creditor classes, 37% of CEOC’s second lien hoteholders have now agreed to the company’s restructuring plan. CEOC needs to hit the magic number of 50.1% in order for these agreements to take effect.
Monday’s deal calls for cooperating second lien creditors to recover at least 46 cents on the dollar. Assuming the 50.1% threshold is reached, CEOC will boost the recoverable amount by another four cents on the dollar, with a further five cents on the dollar if CEOC can convince “at least two thirds” of second lien noteholders to sign on the dotted line.
Should that two-thirds figure be reached, second-lien creditors who agree to the plan would receive a maximum of 55 cents on the dollar. The sum would be paid in a combination of convertible notes and equity in New Caesars, the entity that will emerge from the planned (re)merger of CEC and Caesars Acquisition Company (CACQ).
Under CEOC’s original restructuring plan, junior creditors would have received only around 10 cents on the dollar. The company has been forced to significantly sweeten its restructuring offer to junior creditors ever since an investigator’s report into its controversial pre-bankruptcy asset transfers concluded that potential damage awards to creditors could cost CEC over $5b.
News of the accepted offer comes just one day after CACQ announced the sale of Caesars Interactive Entertainment’s social gaming division Playtika for $4.4b. The sale of the highly profitable Playtika was considered necessary for CEC to be able to contribute the extra sums necessary to convince creditors to sign on to the restructuring plan. Of course, those New Caesars shares will now be worth dramatically less following the sale of its profit engine, but hey, something had to give.
The Illinois bankruptcy judge handling CEOC’s downward spiral has given the company until Jan. 17, 2017 to line up enough creditors to ensure approval of its restructuring. However, that timetable could be derailed by junior creditor lawsuits in Delaware and New York courts challenging CEOC’s asset transfers and other shenanigans, which could get underway on August 29 following numerous stays.