The mediator for the $18 billion bankruptcy case involving Caesars Entertainment Operator Company (CEOC) resigned from the case on Friday. The decision by the mediator to step down is another odd twist to the case -- one which might set back a resolution by months.
The CEOC bankruptcy filing was challenged in Janaury 2015, when creditors claimed that CEOC had been stripped of its valuable assets months prior to filing bankruptcy. The junior creditors, which hold about 20% of the company's debt, claimed the Caesars Entertainment Corp, Apollo Global Management, and TPG Capital had plotted to rob the investors of the assets upon which their investments were made.
Judge Joseph Farnan
The case went before retired U.S. Federal Judge Joseph Farnan, who was assigned the case this past March. Farnan's role was to help the two sides find a settlement which would bring CEOC out of bankruptcy. Now, Judge Farnan appears to despair that he can be the one to end the dispute.
In a letter published before the U.S. Bankruptcy Court, Judge Farnan wrote, "I'm convinced that I can't continue and possibly a new mediator will be able to establish a workable process."
Blamed Judge Goldgar
Judge Farnan did not fault his resignation on either side involved in the dispute. Instead, the judge put the onus on the "atypical views" towards mediation help by Judge Benjamin Goldgar, who is overseeing the case in Chicago.
Judge Goldgar last month ruled to lift a shield from lawsuits against Caesars Entertainment, placing the parent company in danger of being sued. Caesars Entertainment lawyers have hinted before that the company might be forced to declare bankruptcy itself, if the creditors went after Caesars Entertainment and not CEOC.
Goldgar Doubts Mediation Will Work
When he made the August 2016 ruling, Goldgar's opinion cast doubts about the effectiveness of mediation in the case. Despite the filing, Judge Farnan said he was making progress. CEOC has appealed the ruling, which could tie up the process even further.
The key moment in the judges' dispute appears to have been when Goldgar suggested Farnan should testify in court about the progress of mediation. In response, Farnan said that the court "either misspoke or doesn't understand how such disclosures would be viewed by participants and the markets."
Caesars' Contribution to Reorgnization
The crux of the dispute between the two sides appears to be how much Caesars Entertainment and Apollo would contribute to the CEOC reorganization. The idea is the controlling interests should pay in order to have the creditors release their claims.
Apollo directors Marc Rowan and David Sambur have offered to pay $250 million to settle with the junior creditors. For their part, the creditors are said to want several times the $250 million amount. One source earlier in the process suggested it would take $2 billion to end the dispute, but that might have been a bargaining position. To settle with all creditors, Caesars had offered to pay over $4 billion. The junior creditors claim they are owed $12.6 billion.
Rowan and Sambur Claimed Harassment
While filing their offer of $250 million, Rowan and Sambur complained about the creditors harassment attempt. The creditors are accused of wanting a "staggering array" of evidence of their personal financial affairs. They claims this included "receipts and instruction manuals for their children's toys."
When asked to comment on Rowan's and Sambur's charged, the lawyers for the creditors did not reply to Reuters. In Friday trading, shares of Caesars Entertainment closed down 5.4% at $6.32.
