Caesars Wins Temporary Halt to Creditor Suits Over Debtsby
Judge overseeing unit’s bankruptcy sets freeze until Aug. 29
Bondholders are suing to force Caesars to honor unit’s debts
Caesars Entertainment Corp. won a temporary halt to potentially crippling court rulings in bondholder lawsuits that accuse the company of unfairly reneging on a promise to repay billions of dollars in debt.
U.S. Bankruptcy Judge A. Benjamin Goldgar granted a request by the casino giant’s bankrupt operating unit, Caesars Entertainment Operating Co., or CEOC, to suspend cases in New York and Delaware while the unit seeks to finish reorganizing.
The freeze, which expires Aug. 29, is “much shorter” than what the company requested, Goldgar said at a hearing Wednesday in Chicago federal court. Any chance of renewing it “will be slim,” he added.
CEOC claimed a halt was the best way coax its parent into contributing $4 billion in cash, stock and debt toward the unit’s bankruptcy reorganization.
Stephen Cohen, a spokesman for the parent, said Las Vegas-based Caesars was pleased with the decision.
“We are committed to working closely with the creditor groups to gain their support for a restructuring agreement that provides the greatest recoveries to creditors and positions the business to continue to operate and grow substantially,” Cohen said in a statement. Attorneys for CEOC declined to comment in court.
Shares of Caesars Entertainment Corp. jumped more than 10 percent after the ruling.
Should the casino company lose the suits in Delaware and New York, it would eventually be forced to join its operating unit in bankruptcy because it can’t afford to pay almost $11 billion in debt, the company has said.
On Thursday in Delaware, a bondholder trustee was scheduled to ask a judge to rule that Caesars must help repay $3.7 billion in debt owed by CEOC. The following week, a Manhattan judge was to hear a similar request from bondholders who claim Caesars owes them more than $7 billion.
The Delaware lawsuit also threatens top managers of the casino giant’s principal owners, Apollo Global Management and TPG Capital, which took over the gambling company in 2008 in a $30 billion leveraged buyout. TPG founding partner David Bonderman, Apollo founding partner Marc Rowan and Apollo executive David B. Sambur are all accused of violating their financial responsibilities as directors of CEOC. They have denied the allegations.
Jim Millstein of Millstein & Co., a financial adviser to CEOC, told Goldgar last week that Bonderman, Rowan and Sambur could agree to help bankroll CEOC’s reorganization. David Hilty of Houlihan Lokey, financial adviser to the bondholders, told the judge that targeting the Apollo and TPG executives could persuade Caesars to settle faster.
An adverse court ruling would also put the company’s gambling licenses at risk, Millstein said. The kind of “breach of fiduciary duty” claims mentioned in a report by a court-appointed examiner -- and leveled in the Delaware bondholder suit -- are “bad” for a license holder, Millstein said.
“Actual findings of a breach of fiduciary duty would be worse,” he said.
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. Those actions are at the heart of the lawsuits.
Bondholders claim the actions were designed to create a “good Caesars,” which Apollo and TPG would continue to control through their majority ownership, and a “bad Caesars,” which would 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 the company’s actions were a legitimate attempt to restructure CEOC.
No matter what happens with the lawsuits, Caesars and its owners are unlikely to just walk away, according to Bruce Markell, a professor at Northwestern University School of Law and a retired bankruptcy judge.
“At the end of the day, you have a multibillion-dollar enterprise,” Markell, who uses Caesars as an example in his classes, said in an interview before Goldgar ruled. “Are you really not going to save it?”
The judge Wednesday told the parent, the operating unit and the bondholders not to drag their feet while the suits are halted.
“You’ve got that time,” he said. “Use it.”
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).