Caesars Opposition Mounts as Creditor Trustee Adds to Lawsuits

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Caesars Entertainment Corp. faces a new attack in its effort to cut billions in debt, this time from a trustee for bondholders whose support the casino giant needs to restructure its bankrupt operating unit.

UMB Bank, a trustee for senior bondholders owed more than $6 billion, sued Caesars Monday in Manhattan federal court, echoing allegations that until now had been mostly pushed by a less-influential group of lower-ranking creditors.

Caesars has tried for months to line up enough senior creditors to win approval of a proposal to cut lower-ranking debt, allow the parent to retain a stake in the operating unit and halt related lawsuits against its private-equity owners, Apollo Global Management and TPG Capital.

“It really shows an alignment of creditors up and down the capital structure who now are fighting against the company and have their target squarely set” on the parent, Julia Winters, an analyst at Bloomberg Intelligence and a former bankruptcy litigator at White & Case LLP, said by phone.

In several of the cases, creditors allege that the parent company is obligated to guarantee billions of dollars in notes issued by the operating unit. Caesars denies this.

The latest allegations have no merit, Stephen Cohen, a spokesman for the Las Vegas-based parent at Teneo Holdings LLC, said in an e-mailed statement. David Crichlow, a lawyer for UMB Bank, did not return a call seeking comment.

Lender Split

First-lien bondholders and other higher-ranked creditors have been split over Caesars’ proposal. A majority of the senior bondholders signed a restructuring support agreement, while other creditors have so far refused.

A majority of Caesars’ most senior lenders, investors who hold $2.8 billion out of $5.4 billion in guaranteed bank debt, plus junior-ranked creditors, haven’t signed the agreement, according to court filings.

The first-lien bondholders continue to renegotiate the pact, which Caesars and its sponsors, Apollo and TPG, have been using as a guide for the restructuring, according to two people with direct knowledge of the matter.

Caesars’ largest subsidiary filed for bankruptcy in January, while the parent company and other units stayed out. It has agreed to waive certain provisions of the restructuring accord that could force the creditors to hold off on claims against the parent if it also filed for bankruptcy, said the people, who asked not to be identified because the talks are private.

Agreement Remains

Cohen said the agreement remains in effect, notwithstanding the litigation by the first-lien trustee.

Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., didn’t respond to phone and e-mail messages seeking comment. Lisa Baker, a spokeswoman for TPG at Owen Blicksilver Inc., declined to comment.

In bankruptcy, the owner of a company rarely retains its stake unless it pays off all creditors first. To have any shot at succeeding, Caesars must win more support from senior noteholders.

“A plan that gives senior secured creditors a haircut in order to give equity more value is doomed unless the creditors agree to it,” Erik Gordon, a law professor at the University of Michigan’s business school, said in an e-mail.

Until now, second-lien creditors and other lower-ranking debt holders have led the fight against Caesars. The new lawsuit brings to at least five the number of cases attacking restructuring actions Caesars took before the operating unit filed for bankruptcy in Chicago.

Delaware Case

One case was filed in a Delaware state court by the same trustee for the senior noteholders, UMB Bank. The parties in that case have agreed to put it on hold. But other suits, brought by lower-ranking creditors, have met with favorable rulings in the early stages.

UMB is trustee for investors that hold $6.34 billion in the operating unit’s first-lien notes. In Monday’s complaint the trustee asked a judge to force Caesars to return what they are owed. The suit echoes the other cases, invoking the federal Trust Indenture Act of 1939, an argument that has found some favor with one Manhattan federal judge.

Creditors claim Caesars abandoned its promise to repay its operating unit’s debts and shifted assets in an effort to create a “good Caesars” that would be profitable and a debt-heavy “bad Caesars” that would be put into bankruptcy.

Caesars’ operating unit has asked the judge overseeing the bankruptcy to temporarily halt the cases. Jim Millstein, a financial adviser for the operating unit, testified that the parent would be forced to join it in bankruptcy if the creditor suits succeed.

The judge’s decision may come next month.

The lawsuit is UMB Bank v Caesars Entertainment Corp., 15-cv-04634, U.S. District Court, Southern District of New York (Manhattan). The bankruptcy is In re Caesars Entertainment Operating Co., 15-bk-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).

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