The United States Trustee Program Disapproves of Caesars Entertainment’s Bankruptcy Reorganization
The United States Trustee Program disapproves of the Caesars Entertainment Corporation’s bankruptcy reorganization plan for its operations division, CEOC. The United States Trustee Program is a government agency which oversees bankruptcy cases and private trustees under the auspices of the US Department of Justice.
The Trustee Program’s overseer rejected Caesars Entertainment’s “blanket immunity” claims, due to “acts far beyond the plan or the Chapter 11 cases”.
The decision came after an independent auditor appointed by the judge overseeing the case ruled that Apollo Capital and TCG Holdings, the owners of Caesars Entertainment and CEOC, could be liable for up to $5.1 billion due to irregularities in their reorganization plan.
The junior creditors for the Caesars Entertainment Operations Corporation (CEOC) are suing Caesars Entertainment, claiming the Las Vegas casino company robbed CEOC of key properties prior to declaring bankruptcy in order to keep those assets from investors. CEOC declared bankruptcy in January 2015, but the parent company moved 12 casino properties from CEOC in August 2014.
The investors claim Caesars Entertainment must have known that bankruptcy was looming for CEOC, which is why they tried to divest the subdivision of the company prior to reorganization. CEOC holds about $18 billion of Caesars’ $23 billion in debt.
Justifies Possible Appeals Case
The ruling by the US Trustee Program has no direct implications in the bankruptcy case. If a federal bankruptcy judge accepts the current CEOC reorganization plan, the ruling almost assures that the junior creditholders have grounds to appeal the case.
Caesars Entertainment wants to end the lawsuit quickly, so it can move forward into a new era of financial dealings. Caesars lawyers petitioned to have the case dropped in February 2016, but Judge Goldgar rejected the plea. They made a similar request later in the year, but that led to one of the most dramatic moments in the bankruptcy case.
August 2016 Judge’s Opinion
Instead, the judge in the case made a key ruling against Caesars Entertainment in August 2016, which placed the parent company in financial jeopardy. At the time, Caesars Entertainment threatened they might need to declare bankruptcy, if the CEOC ruling went against them.
For his part, Judge Goldgar has encouraged Caesars to settle with the junior creditors. Goldgar said at the time, “Almost twenty months have passed since this bankruptcy case was filed. During that time, the debtors and CEC have had two injunctions. The injunctions I’ve issued have been more of an impediment than an aid.”
That meant Caesars had to face a lawsuit with as much as $11 billion on the line. In response, Caesars increased its offer to the creditors by several billion dollars. At present, the two sides are said to be $1.5 billion away from a settlement. In such a massive lawsuit, one would think a “mere” $1.5 billion could be settled between the two parties. It is possible, given the creditors have received several court victories over the months, that their asking price is more than the rumored amount.
Joseph Farnan’s Resignation
Not long after Benjamin Goldgar’s decision in the creditors’ favor, another judge associated with the case resigned abruptly. That was retired U.S. Federal Judge Joseph Farnan, who was appointed as the mediator in the case. When Judge Goldgar called for Farnan to testify in court about the negotiations, Judge Farnan resigned.
When asked about his decision to resign, Judge Farnan attributed it to Goldgar’s missteps. Farnan said, in asking a mediator to testify in court on the proceedings, Goldgar “either misspoke or doesn’t understand how such disclosures would be viewed by participants and the markets.”
CEOC Reorganization Plan’s Details
The current debt reorganization plan splits CEOC into two subdivisions — one which remains an operations division and the other which encourages investment in new real estate deals involving the Las Vegas casino company. The first lienholders, who hold about 80% of CEOC, are to be vested in the property development division. The junior creditors, who hold the remaining 20% of CEOC, are to remain vested in the operations division.
The two division split the $18 billion in debt, with between $8 billion to $9 billion-plus of the debt remaining in each division. Because CEOC no longer holds its most valuable assets, the junior creditors claim over $8 billion of the debt has been shifted to them, while they are given a worthless, asset-less division in return.
The United States Trustee Program seems to agree with the junior creditors that they have received a bad bargain. That is becoming a consistent pattern in this case. One can expect the judge in the case to push once more for further compromise on the part of Caesars. After once before upping its offer by several billion, one can wonder whether the troubled casino company has more financial room to maneuver.
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