Caesars Bondholders Pressing Illinois to Block Loan

A Caesars Entertainment Corp. (CZR) bondholder group will ask Illinois officials to block the casino company from obtaining a new loan that strips them of guarantees used to back their debt, according to people with knowledge of the matter.

Caesars operates two casinos in Illinois, giving regulators there some say in whether the company can proceed with a $1.75 billion refinancing it announced in May. First- and second-lien bondholders are scheduled to testify when the Illinois Gaming Board meets June 26, according to the agenda.

The bondholders are turning to Illinois after failing to get help from other states in unwinding casino sales that they say diminished the value of their bonds, according to the people, who asked not to be named because the dispute may end up in court. Caesars is still burdened by debt from a $30.7 billion leveraged buyout in 2008 led by Apollo Global Management LLC (APO) and TPG Capital.

“We believe there’s no legitimate basis to challenge the steps we have taken to improve the long-term financial health of Caesars,” Steve Cohen, a company spokesman, said yesterday by phone.

Gene O’Shea, an official with the Illinois Gaming Board, said he had no knowledge of the matter.

Second-lien investors filed a notice of default with Las Vegas-based Caesars on June 5, according to a company filing.

The default notice cited the sale of four properties to Caesars Growth Partners LLC, an affiliate, from Caesars Entertainment Operating Co., as well as the cancellation of a debt guarantee by the parent company.

LBO Debt

Caesars Entertainment Operating Co. accounts for the bulk of the casino company’s debt, which stood at more than $23 billion as of March 31.

Caesars said in March it would sell the Bally’s, Quad and Cromwell casinos in Las Vegas, along with Harrah’s in New Orleans, to Caesars Growth Partners.

The $2.2 billion transaction was designed to facilitate new investment in the properties and increase liquidity at the operating company, Chairman and Chief Executive Officer Gary Loveman said on a conference call at the time.

Last week, the company delayed completion of an exchange offer for some bonds by 11 days, citing the need for regulatory approval to receive proceeds of the new loan.

In Louisiana, representatives of the investors testified at two meetings of the state Gaming Control Board to block the transfer of the Harrah’s New Orleans to Growth Partners.

The board unanimously approved the transaction at its May 19 meeting, according to minutes of the session.

Other States

Bondholders also met with staff of the Nevada Gaming Control Board, which likewise approved the transaction, according to A.G. Burnett, chairman of the board. They met with the Ohio Casino Control Commission, though Caesars didn’t need approval there, according to John Barron, the panel’s general counsel.

“It was purely informational on their part,” Barron said in a telephone interview.

William Hardie, a managing director in New York for the investment bank Houlihan Lokey, which is advising the second-lien holders, told Louisiana regulators on April 24 that assets Caesars has or is transferring, including the four hotels and earlier deals, were worth as much as $2.2 billion more than what Caesars Entertainment Operating Co. received.

Legal Action

Hardie said the investors intended to bring a legal action seeking to reverse the deals.

“Whether this board likes it or not, it is likely to get dragged back into this big mess,” he said at the hearing.

Caesars Entertainment Operating Co.’s $3.6 billion of 10 percent notes maturing in December 2018 fell three-quarters of a cent to 38.75 cents on the dollar yesterday, an all-time low, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Arrowgrass Capital Partners LLP, a $4.5 billion hedge fund that owns secured bonds of Caesars Entertainment Operating Co., is in talks with law firm Brown Rudnick LLP to see if those securities have a more senior claim than others on cash from asset sales, said two people with direct knowledge of the matter.

Nick Lord, a spokesman for London-based Arrowgrass, and Marcia Brier, a spokeswoman for Brown Rudnick at MCB Communications, declined to comment.

Caesars fell 2.6 percent to $17.84 yesterday in New York. The stock has declined 17 percent this year.

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net Rob Golum, Niamh Ring

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