After six months of stalled talks on how to restructure $19.9 billion of debt held by creditors of Caesars Entertainment Corp.’s biggest unit, the casino company is trying a new strategy.
Caesars reached an agreement Monday with some members of a bondholder class that up to this point have been its fiercest opponents, according to a statement Monday from the casino company. The group includes Paulson & Co., Canyon Partners and Soros Fund Management and owns about 30 percent of junior notes that have faced some of the worst losses from the bankruptcy of the main Caesars operating division in January, a person with knowledge of the matter said.
While that’s less than the two-thirds majority it needs to consummate a restructuring plan in court, it’s giving the company the clearest path yet to reaching that point and resolving one of the last cleanups of the debt boom that triggered the 2008 financial crisis. The potential for a resolution with the junior creditors, which own the operating unit’s $5.2 billion of second-lien bonds, is driving up the value of Caesars debt to the highest in almost a year.
“To get another major creditor group on board like the second-liens, you’d be able to get closer to the finish,” said Chris Snow, a gaming-debt analyst at CreditSights Inc. in New York.
Caesars and its private-equity owners, Apollo Global Management LLC and TPG Capital, have had little luck in rallying the support of a majority of its creditors as it struggled under the load of $30.7 billion of debt taken on in its 2008 leveraged buyout. A pact reached last year with one key group put the operating unit into bankruptcy with a plan to eliminate about half of its $19.9 billion of borrowings and turn it into a real estate investment trust.
The unit, Caesars Entertainment Operating Co., entered into bankruptcy proceedings on Jan. 15 in Chicago with the support of the most-senior bondholders.
Representatives for Caesars, TPG, Paulson, Canyon and Soros declined to comment, while a spokesman for Apollo didn’t respond to telephone and e-mail messages.
An official court committee representing second-lien bondholders said in a statement that while its members “will continue to explore all options for maximizing value” they won’t “support a plan that is coercive to its constituency and premised upon improper payments.”
The second-lien bondholders, who have a lower claim on the company’s assets than senior creditors, sued the company in August, claiming that it improperly shifted assets out of the operating unit to prevent them from being able to collect billions of dollars owed to them.
The fate of the most recent talks will become clearer after a hearing Wednesday in which the judge presiding over the bankruptcy considers whether the second-lien lawsuit and others can continue at the same time as the bankruptcy proceedings. A financial adviser to Caesars has said allowing those suits to go on would drag the parent into Chapter 11 as well.
The deal Caesars is seeking to complete with the Paulson group is intended to show enough progress to sway Judge A. Benjamin Goldgar, who’s hearing the Chapter 11 case, the person with knowledge of the matter said, asking not to be identified because the discussions are private.
Paulson, Canyon and Soros are all among the 10-biggest shareholders in the Caesars parent and also are among the largest in another unit, Caesars Acquisition Co., according to data compiled by Bloomberg. Those investments could suffer if Caesars were unable to strike a deal with creditors and had to put the parent into bankruptcy.
Caesars is wooing the second-lien bondholders by offering a chance to own a piece of the still-solvent parent, in the form of convertible notes that could be swapped for shares, the company said in the statement Monday. Creditors would receive two sets of $200 million seven-year convertible notes that pay interest of 5 percent and carry a minimum strike price of $20 per share of Caesars’ parent company.
Creditors who sign onto the restructuring plan and agree to forgo their claims will receive pieces of both notes. Creditors who don’t sign will only get one.
Caesars didn’t identify the creditors that signed the pact, saying only that they represented a “significant amount.” The deal becomes effective when creditors representing 50.1 percent of the second-lien debt agree to the deal, the company said.
“From the second-lien perspective, anything is better” than the initial restructuring plan, Julia Winters, an analyst at Bloomberg Intelligence, said by telephone. How well a revised proposal is received “depends on how much equity they’re offering,” she said.
The biggest of Caesars’ second-lien bonds, $3.6 billion of 10 percent notes due in 2018, climbed to as high as 29.3 cents on the dollar, their highest level in 11 months, before falling to 27 cents at 10:13 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Caesars shares jumped as much as 27 percent, reaching $8.31, the highest intraday level since June 1. They closed at $8.02 on Tuesday in New York.
Under bankruptcy rules, the casino operator would need at least two-thirds of the second-lien bondholders to endorse the plan, in addition to a majority of individual holders, for the group to be deemed a consenting party.
The new restructuring plan requires the Caesars unit to exit bankruptcy by July 15, 2016. The original plan called for it to emerge by Feb. 9, according to Bloomberg Intelligence.
Some of the biggest holders of the second-lien notes have been part of the group fighting Caesars in the other lawsuits. That includes Appaloosa Management, whose units held almost $900 million of debt as of February, according to court records.
The trustee that filed the creditor lawsuit, along with Appaloosa, Oaktree Capital Group LLC, Tennenbaum Capital Partners and Centerbridge Partners also are members of the court-authorized committee of second-lien bondholders, which has been against earlier Caesars plans.
Caesars “has chosen not to engage” the court committee in talks about the new restructuring plan, according to the group’s statement posted on an official website for the bankruptcy case. The bondholders that agreed to the deal don’t have access to documents a court-appointed examiner is sharing with parties such as the committee, the group said.
A spokeswoman for Oaktree declined to comment while representatives for Appaloosa, Centerbridge and Tennenbaum didn’t immediately respond to telephone and e-mail messages.