Casino operator Caesars Entertainment Corp (CEC) saw its shares jump nearly 17% on Friday, an upbeat end to an otherwise downer week.
Investors pushed CEC shares up $1.15 to $8.02 on Friday, even as the overall market lost 3% of its value. Investors were buoyed by news that CEC has restarted negotiations with its main bank lenders regarding its plan to restructure its bankrupt main unit Caesars Entertainment Operating Co (CEOC).
On Monday, CEC filed an update with the Securities and Exchange Commission announcing that talks with its senior bank lenders had broken off the day before. Unlike the majority of CEOC’s senior bond holders and a minority of its junior creditors, CEC has been unable to convince the bankers to sign off on its restructuring plan, which would see CEOC split into two divisions: one to operate its casinos and another to own the land on which those casinos stand.
On Friday, Bloomberg News reported that CEC had restarted talks with the bankers, who hold around $3b of CEOC’s $5.35b in term loans. But the bankers are still balking at being paid off in new debt belonging to the restructured CEOC and they also want CEC to double the $62.5m upfront cash payment it had previously offered as an incentive for signing on with the restructuring plan.
JUNIOR CREDITORS WANT TO TAKE CONTROL FROM HEDGE FUNDS
Meanwhile, the 80% of junior creditors who have yet to sign on to CEC’s proposal are demanding that CEC’s hedge fund owners Apollo Global Management and TPG Capital surrender their majority control of CEC.
A statement posted on a bondholder website this week said the junior creditors had proposed a deal by which they would receive stock and convertible notes totaling a 52% stake in CEC. These creditors are also seeking to appoint four of the seven directors on CEC’s revamped board.
In exchange, the creditors would drop their lawsuits, which threaten to drag CEC into CEOC’s bankruptcy in Illinois. The creditors are attempting to convince courts in other states that CEC’s pre-bankruptcy transfers of profitable assets out of CEOC into other CEC divisions were an illegal ‘looting’ of CEOC to safeguard the hedge funds’ investment.
Unsurprisingly, CEC rejected the junior creditors’ offer, choosing to bet that US District Court Judge Robert Gettleman will decide to suspend these lawsuits. Earlier this month, Gettleman promised to issue a ruling by the end of September on whether the lawsuits in Delaware and New York can proceed while CEOC’s bankruptcy is ongoing. It’s a high-stakes bet, given that the New York court has strongly hinted that it views the asset transfers as illegal.
