Caesars Among Firms Said to Push to Curb Lender Protection

Caesars Entertainment Corp. and Education Management Corp. have been stymied in their efforts to influence Congress to change a Depression-era law that’s designed to protect lenders, according to people with knowledge of the matter.

The casino company owned by Apollo Global Management LLC, and the for-profit college backed by KKR & Co., tried last month to insert an amendment into an early version of the landmark U.S. transportation bill that would’ve rolled back part of the 1939 law known as the Trust Indenture Act, said the people, who asked not be identified discussing the actions because they haven’t been made public. Without the changes, the companies may find it harder to win creditor lawsuits claiming actions they took to revise their debt violated parts of the act. 

Caesars has said it will probably have to join its bankrupt subsidiary in Chapter 11 if it loses the suits, which are over actions the company took to shuffle debt before the unit filed for court protection. Apollo, which controls Caesars along with TPG Capital, could then lose its stake entirely in the casino giant. Education Management may have to pay out junior creditors who didn’t go along with its out-of-court debt reorganization, hurting the investment value of KKR, which is among the company’s largest equity holders.

Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., Kristi Huller, a spokeswoman at KKR, and Chris Hardman, a representative for Education Management, declined to comment. Jan Jones Blackhurst, a spokeswoman for Caesars, didn’t immediately respond to an e-mail message seeking comment.

Worried Investors

Although they were unsuccessful, some investors are worried that the companies could try to insert another version of the amendments into the U.S. government’s spending bill that needs to be passed by Dec. 11, the people said.

The companies’ “sole aim is to overturn several federal district court decisions that were not in their favor,” Andrew Milgram, managing partner of Marblegate Asset Management, said in a statement Monday. His firm won a court case against Education Management and could be affected by a change in the rules. The U.S. Court of Appeals for the Second Circuit has agreed to hear the company’s appeal of the ruling. “We strongly urge Congress to leave out the erroneous Trust Indenture Act provision in the omnibus bill,” he said.

The proposed amendments would’ve killed two key provisions in the existing law that limit what companies can do to modify their debt without having creditors demanding to collect on it, said Julia Winters, a legal analyst at Bloomberg Intelligence.

The changes would have made it more difficult for minority bondholders to challenge actions companies take in restructurings, according to a Dec. 4 research note by Winters and Bloomberg Intelligence analyst Philip Brendel.

Under the proposal, creditors would be protected by law only if a company reduced principal amounts, interest rates or maturity dates, according to a copy of the draft amendment published by Politico. If a company changed those attributes, bondholders would have the right to get paid back in full.

The Wall Street Journal reported earlier on Caesars’ lobbying efforts.

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