Apollo, TPG Reject Caesars’ Demand for $990 Million Rescue

  • Apollo, TPG refuse to pay to end bankruptcy, adviser says
  • Casino operating unit seeks to settle with bondholders

Caesars Entertainment Corp. needs another $990 million to help get its main operating unit out of bankruptcy, but its biggest shareholders, Apollo Global Management LLC and TPG Capital LP, have refused to kick in any more, according to a company financial adviser.

The added cash wouldn’t resolve all disputes in the bankruptcy of Caesars Entertainment Operating Co., but it would help close a deal with key holdouts, Brendan Hayes of Millstein & Co. said Tuesday in bankruptcy court in Chicago. A contribution from Apollo and TPG could settle lawsuits by dissident bondholders that may cost CEC billions of dollars, the biggest obstacle left to salvaging the casino empire, said Hayes, who’s advising CEOC.

The refusal rebuffs pleas from the operating unit that Apollo and TPG indirectly own, and ignores a strongly worded rebuke from the federal judge who’s overseeing efforts to save the casino empire. U.S. Bankruptcy Judge A. Benjamin Goldgar has questioned how the two private-equity firms can demand that all legal cases against them be dropped while declining to give creditors any cash to resolve their claims, which are backed by a court examiner.

“If I’m Apollo, I’m playing hardball and I’m not going to flinch,” Bruce Grohsgal, a bankruptcy professor at Widener University’s Delaware Law School, said in an interview. Apollo has plenty of experience with tough restructuring talks and is unlikely to cave in easily, he said. “I don’t think they are running scared down the street yet,” Grohsgal said.

Representatives for Apollo and TPG declined to comment for this story.

The added cash would boost recoveries for second-lien bondholders, the only big group of Caesars creditors that has refused to sign onto a deal to reorganize the bankrupt casino operator. Dissident bondholders want to use the suits to boost their recoveries above the 34 percent offered by CEOC. Hayes testified the $990 million would boost payouts to 55 percent of what second-lien holders are owed.

Goldgar pressed Hayes on how the private-equity firms responded to demands for help. “It sounded to me like the answer you got was, ‘That’s not our problem. That’s a CEC problem,” Goldgar told Hayes.

“I don’t necessarily agree with that, but yes, that’s what we heard,” Hayes said.

Extension Sought

The operating company was in court Tuesday hoping to persuade Goldgar to extend a ban on the lawsuits that’s set to expire on Aug. 29, so that negotiations could continue.

The private-equity firms, some of their executives and CEC face claims that a bankruptcy court examiner found could be worth as much as $5.1 billion. Insurance could cover about $300 million, Hayes said. CEC has offered stock, cash and new debt it says is worth $4 billion to settle the lawsuits and reorganize CEOC.

Under the reorganization plan, creditors would get new stock in CEC, which would dilute the 60 percent share owned by Apollo and TPG without costing them any money. Apollo, which has been the most active shareholder in the bankruptcy case, is unlikely to give anything more until its investors complain and Goldgar sets a firm deadline to lift the ban on legal action, Julia Winters, a Bloomberg Intelligence analyst in New York said.

“It doesn’t seem like Apollo is afraid of Goldgar,” Winters said. But the firm may be worried about a separate judge overseeing the case in New York, where CEC has lost key preliminary fights. “The real question is, what’s the appetite of Apollo’s investors?”

Hayes said CEC and a committee of second-lien bondholders may need about a month to settle their differences, but he didn’t say exactly how much the committee is demanding.
The bondholders are split between minority holders who have been willing to compromise with Caesars and a committee made up of investors who hold more than 50 percent of the $5.5 billion of notes. Hayes said the $990 million would help get the minority group to sign a final deal. A deal with the majority holders could take another 30 days or so.

In lawsuits filed in New York and Delaware, bondholders claim that CEC, at the direction of Apollo and TPG Capital, abandoned a pledge to repay CEOC’s debts and divided the business into a profitable “good Caesars” with few debts and a “bad Caesars” that could be put into bankruptcy. Caesars, Apollo and TPG have all denied the allegations and vowed to prove their actions were a legitimate attempt to restructure CEOC.

Appaloosa Affiliates

The dissident bondholders hold more than half the $5.5 billion in second-lien notes issued by CEOC that had once been guaranteed by CEC. A committee representing those bondholders include affiliates of Appaloosa Management. Appaloosa held more than $880 million in second-lien notes in various investment funds it manages, according to court documents filed in February 2015.

As CEC struggled to restructure in the years following a $30 billion leveraged buyout in 2008, the company dropped the guarantee to bondholders, claiming the contract allowed the change.

The investors objected and a bankruptcy court examiner backed their allegations, finding that there was a good chance that lawsuits against CEC and some of its executives could raise as much as $5.1 billion for creditors.

CEOC and CEC want to resolve those claims as part of a reorganization scheduled to go before Goldgar in a January trial. CEOC will try to persuade Goldgar to approve its bankruptcy plan and a settlement package from CEC that it claims is worth $4 billion. In return for Apollo and TPG agreeing to see their ownership stakes shrink to about 30 percent from about 60 percent, the private-equity funds, their executives and CEC would be freed from the lawsuits.

The hearing in Chicago is set to continue Wednesday and may end Thursday, when Goldgar scheduled closing arguments from both sides.

The bankruptcy is In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).

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