Caesars Creditors to Vote on Plan, But Confirmation Fight Awaits

  • January bankruptcy trial won’t be short, Chicago judge warns
  • Casino company still seeking deal to avoid risky court battle

Caesars Entertainment Corp.’s bankrupt operating unit won permission to submit its reorganization plan to creditors for a vote, setting the stage for a final courtroom showdown early next year between the casino giant and bondholders who say they’re being shortchanged.

At a hearing in Chicago Wednesday, U.S. Bankruptcy Judge A. Benjamin Goldgar ruled that Caesars Entertainment Operating Co.’s disclosure statement, which explains the plan, contains enough information for creditors to make an informed decision on whether to accept its terms. Most senior creditors of the unit, known as CEOC, have already pledged to back the proposal. Creditors have until Oct. 31 to vote.

CEOC and its non-bankrupt parent can now focus on negotiating a deal with the only major creditor group still fighting the plan -- bondholders owed more than $5 billion in second-lien debt.

If no deal is struck, Goldgar will begin a trial in January over whether the reorganization plan should be approved without the second-lien noteholders’ backing. That trial would focus on the central dispute of the bankruptcy: whether the parent company has offered enough to settle claims that it improperly moved collateral beyond the reach of CEOC creditors and reneged on a promise to guarantee the unit’s debts.

‘Several Weeks’

Goldgar warned the lawyers to set aside plenty of time for the trial.

“I would block out several weeks,” he said Wednesday. “I am not envisioning something short.”

Las Vegas-based Caesars has until the end of August to strike a deal with the dissidents, who hold notes due 2018. After that, Goldgar has said, he will most likely give the bondholders permission to pursue lawsuits against Caesars that are on hold in New York and Delaware courts.

Caesars has said losses in Delaware and New York would force it to join the operating unit in bankruptcy because it can’t afford to repay the almost $11 billion in debt at stake.

In September, the holdouts will ask Goldgar to strip CEOC of its right to settle bondholder disputes on behalf of its parent, a linchpin of the current proposal. Without it, the plan would have to be scuttled.

Asset Transfers

CEOC filed for bankruptcy in January 2015 after transferring valuable assets to other units of Caesars and after the parent restructured some debt and eliminated a guarantee to help repay CEOC obligations.

The holdouts claim those actions were designed to create a “good Caesars,” which principal owners Apollo Global Management and TPG Capital could continue to control, and a “bad Caesars,” which could be put in bankruptcy where bondholders would be forced to accept less than they are owed. Caesars has long denied the allegations and vowed to prove its actions were a legitimate attempt to restructure CEOC.

Under the reorganization plan, CEOC would be split into two main companies: a property company to hold real estate including all the hotels and casinos, and an operating company to hold the gambling licenses and run the casinos.

Senior bondholders, who are owed about $6.35 billion, would get all the stock in the property company, $2 billion in cash, almost $1.9 billion in new debt and nearly 16 percent of the equity of the parent company. Creditors who hold $5.35 billion in bank loans would get $3.2 billion in cash, $2.2 billion in new debt and 5 percent of the parent.

The equity, cash and debt those senior creditors would receive under the plan may be worth more than the two groups are actually owed, according to the disclosure statement.

The lower-ranking bondholders, including the second-lien noteholders, would share $1 billion in convertible notes that could convert into as much as about 12 percent of the parent company plus an additional 24 percent in shares.

The bankruptcy is In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The main Caesars lawsuit is BOKF NA v. Caesars Entertainment Corp., 15-cv-01561, U.S. District Court, Southern District of New York (Manhattan).

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