Judge to Caesars Creditors: 'Just Click Your Heels' to Start $20 Billion Talksby
`There is no place like mediation,' squabbling parties told
All sides agree supervision of negotiations is necessary
Creditors squabbling over the bankrupt remains of Caesars Entertainment Operating Co. thought they had finally found something to agree on: They need a responsible adult to supervise debt-restructuring talks.
So, they asked the court overseeing the $20 billion reorganization to order them into mediation and to appoint either an active or retired bankruptcy jurist to supervise.
U.S. Bankruptcy Judge Benjamin Goldgar refused.
“You don’t need my permission,” Goldgar said Wednesday in Chicago. “Just click your heels together three times and say, ‘There is no place like mediation.’”
Mediation is a great idea that is months overdue, Goldgar said. But last month, the local rules that gave federal judges power to order mediation in his jurisdiction were revoked. And there’s no other legal authority to justify ordering everybody to sit down and negotiate, Goldgar said.
Without court-ordered mediation, creditors who feel left out of the company’s current reorganization proposal will be free to refuse to negotiate. So far, on-again, off-again talks have failed to resolve the most contentious disputes in the bankruptcy.
Goldgar’s decision appeared to surprise the dozens of lawyers and other professionals who gathered for the hearing. All the major bondholder groups and other lenders, who have been warring since the case was filed more than a year ago, had asked the judge for the mediation order.
Mediation orders are a common judicial tool, but they only work when all sides are closer to a bargain than the Caesars creditors appear to be, Erik Gordon, a law professor at the University of Michigan, said in an interview.
“When you see something as unusual as this, one thing you can be sure of is the judge is plenty irritated with the parties,” Gordon said.
Lawyers for Caesars, its senior lenders and its mid-tier bondholders all declined to comment after the hearing.
Senior bondholders and lenders have been fighting lower-ranking creditors over how to split up the company’s assets. Low-ranking creditors are also battling with the parent company of Caesars, which is not in bankruptcy, over how much it will contribute to free the operating unit from court oversight.
Under Caesars’ plan, the bankrupt unit would be split into two parts, each owned by different groups. A real estate investment trust would own all the property, including the flagship Caesars Palace resort in Las Vegas and casinos in Atlantic City. That trust would be majority-owned and controlled by senior bondholders.
An operating company to be owned by Caesars’ parent, Caesars Entertainment Corp., will lease all those properties and operate the resorts and casinos. The operating company would pay the real estate trust $640 million a year in rent for the first seven years of the lease before the annual payments would be adjusted based on casino revenue.
Goldgar gave Caesars until July 15 to file a new version of its reorganization plan. After that date, creditors, who can’t even agree on exactly which date to use for the official start of the bankruptcy, will be free to propose their own, competing proposals.
That means if one of the warring creditor bands doesn’t want to negotiate over the company’s plan, all they have to do is wait so they can try to write one of their own.
The case is In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).