Casino operator Caesars Entertainment has been granted yet another temporary reprieve from junior creditor lawsuits.
On Tuesday, US District Judge Robert Gettleman gave Caesars until October 5 to appeal a bankruptcy court ruling that would have allowed junior bondholder lawsuits to proceed against Caesars and its bankrupt main unit, Caesars Entertainment Operating Co (CEOC).
Caesars’ shares closed Monday’s trading down 16% after US Bankruptcy Judge Benjamin Goldgar issued a ruling on Friday that refused to grant Caesars a third stay of the junior bondholder lawsuits.
The bondholders sued Caesars in Delaware and New York courts over what they claim were illegal asset transfers and an illegal withdrawal of guarantees by the parent company on some $11.4b in CEOC debt prior to CEOC filing for Chapter 11 protection in January 2015.
Caesars has been herding cats for the past year-and-a-half in a bid to obtain sufficient creditor support for CEOC’s restructuring, but junior creditors have proven unwilling to accept Caesars offer of 34¢ on the dollar.
In issuing his ruling, Goldgar acknowledged the impasse between the rival factions, saying a third injunction against the lawsuits was unlikely to “enhance the prospects for negotiation.” Goldgar also wondered why Caesars’ hedge fund owners weren’t offering to top up the offering to creditors.
Gettleman’s ruling gives Caesars a little over one month to achieve shareholder consensus. Failing that, Caesars will have to offer some legal argument that convinces Gettleman to overturn Goldgar’s ruling, but Gettleman warned Caesars on Tuesday that it faced an “uphill” climb in convincing him that a permanent injunction was warranted.
Gettleman’s ruling preempted a Tuesday hearing by the New York court on the bondholder suits. The New York court is further along in the litigation process than its Delaware counterpart and a court-appointed examiner has suggested Caesars is likely liable for at least $5.1b in additional claims.
Caesars has argued that it too will be forced to file for Chapter 11 protection if it is forced to honor its guarantee of CEOC’s debts. Goldgar has given the company until January 17, 2017 to present a final restructuring plan that has the support of all creditor classes.
Earlier this month, Caesars resolved one New York headache by reaching a deal with Frederick Barton Danner, the lead plaintiff in a class action suit by a group of bond holders representing $750m in unsecured CEOC debt. The deal terms included payment of Danner’s legal fees and an extra 6.38¢ on the dollar for creditors who supported the restructuring plan.