Caesars offers creditors another $1.6b, would spell end of hedge fund ownership

caesars-final-offer-creditorsCasino operator Caesars Entertainment has improved its offer to junior creditors to over $5b, but the offer is only good until Friday.

On Wednesday, Caesars added an extra $1.6b to the $4b it had already offered junior bondholders of Caesars Entertainment Operating Co. (CEOC), the main unit of Caesars that filed for bankruptcy protection in January 2015, citing $18.4b in debt.

The total amount that the parent company is offering junior creditors now exceeds the $5.1b that an independent examiner determined the parent was liable for if these creditors were to prevail in their lawsuits in Delaware and New York.

Most of the additional $1.6b is coming from Caesars’ hedge fund owners, Apollo Global Management and TPG Capital, who have agreed to give up their equity in Caesars in exchange for releasing them from liability related to those creditor lawsuits.

The lawsuits were filed after creditors accused Caesars and the hedge funds of illegally shifting profitable assets out of CEOC and into other Caesars units prior to the bankruptcy filing. Creditors have also accused the parent company of reneging on guarantees to honor CEOC’s debts.

The extra $1.6b includes $100m from Caesars directors and officers, via their insurance companies. Last week, US Bankruptcy Judge William Goldgar approved a creditor request to have a peek at the personal finances of some of these directors and hedge fund owners in order to determine how much they could contribute to CEOC’s restructuring.

An additional $400k would come from “small” reductions in recoveries by senior creditors, most of whom have already approved CEOC’s restructuring. These senior creditors have to sign off on these reductions for the plan to go ahead.

On Wednesday, CEOC attorney David Seligman told the Illinois bankruptcy court that this “best and final” offer was only valid until Friday. The creditors have argued in court that they are owed $12.6b, and it remains to be seen whether they’ll take Caesars bait or roll the dice and see how the lawsuits turn out.

Should the creditors take the money on the table, it will bring an end to the hedge funds’ disastrous involvement in the Caesars debacle. The funds loaded up on $28b worth of debt to purchase the then-named Harrah’s in 2007, only to have the financial rug pulled from under their feet when the global economy tanked the following year, a setback from which the company never recovered.