Caesars Entertainment and Second-Lien Creditors Break Off Talks in Bankruptcy Negotiations

Last updated on November 2nd, 2018

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Bankrutpcy negotiations have broken down between Caesars Entertainment Corporation and a group of investors referred to as the second-lien creditors. The creditors had invested in the company’s operations division — Caesars Entertainment Operations Company (CEOC) — and believe the parent company is saddling them with billions of dollars of debt in its proposed bankruptcy plan.

Bloomberg reported a story in Crain’s Chicago Business that the judge in the case believes further negotiations are pointless. Apparently, the judge believes Caesars Entertainment is no longer willing to provide new concessions to its creditors.

Judge Farnan’s Opinion

The mediator in the case if retire Federal Judge Joseph Farnan. Judge Farnan was a county attorney and chief deputy attorney general in Delaware up until 1981, when he began the United States Attorney for the District of Delaware. In 1985, President Ronald Reagan nominated Joseph Farnan for the US District Court for the District of Delaware. Judge Farnan served on the federal bench until his retirement in 2010. He is the longest-serving member of the federal bench in Delaware’s history.

When contacted by Bloomberg News, Judge Farnan said, “I believe that there is currently no likelihood of material progress in the discussions.”

CEOC’s Bankruptcy Plan

Caesars Entertainment Corporation is not bankrupt, but its operation division filed for bankruptcy in January 2015. Because Caesars moved assets (casinos) out of the operations division 6 months prior to the bankruptcy filing, the second-lier creditors sued CEC, claiming they Las Vegas casino company had denuded CEOC in order to place the debt burden on them.

The investors are estimated to be owed $11 billion, which has led to 5 separate lawsuits. Those cases were filed in New York and Delaware, while a case filed in Chicago was moved to Delaware.

Haggling over $1.1 Billion

A court-appointed bankruptcy examiner estimated that the creditors would receive $5.1 billion in their combined lawsuits. To settle the case, Caesars Entertainment offered to pay $4 billion in cash, stock, and debt. In return for the $4 billion payment, the second-lien creditors would agreed to give up all current or future lawsuits against Caesars, based on its restructuring prior to the bankruptcy filing.

While the case does not involve Caesars Entertainment Corporation itself, some analysts have speculated a loss in the case might force Caesars to declare bankruptcy. It is possible such speculation involves a worst-case scenario in which Caesars would need to pay $11 billion in debt.

Caesars’ $23 Billion Debt Burden

In all, Caesars Entertainment is said to owe about $23 billion in debt. About $18 billion of that figure was owed by CEOC. The holding companies which own Caesars Entertainment — TPG Capital and Apollo Global — convinced the first lienholders to agree to the bankruptcy plan.

The first lienholders represented about 80% of the debt owed, but those creditors were to be given stock in a new real estate development wing of Caesars Entertainment. The second-lien creditors remained vested in CEOC, but they charge that CEOC was robbed of its most valuable assets in an August 2014 reorganization, in which over a dozen casinos were moved out of CEOC at (what they claim was) less-than-market value.

August 2014 Reorganization Is Key

Given that most of CEOC’s assets were moved only 4 to 5 months prior to a bankruptcy filing — and Caesars was already warning investors of a possible bankruptcy in November 2014, three months after the move — multiple judges and court-appointed examiners have suggested the August 2014 moves were suspicious.

The properties which were taken out of the CEOC division in August 2014 were a major stake in Caesars Palace Las Vegas and 2 casinos in Atlantic City, along with a dozen casinos under the Harrah’s or Horseshoe brands. The Harrah’s and Horseshoe casinos were located in smaller U.S. markets, such as Reno, Nevada and Tunica, Mississippi.