Caesars Suing Apollo to Stop Creditors From Suing Apolloby
Bankrupt casino operator bids to halt bondholder court attack
Thicket of creditor litigation threatens reorganization plans
Caesars Entertainment Operating Co. has a new strategy for resolving its contentious bankruptcy: Sue its parent, the parent’s owners and their executives before disgruntled bondholders do.
The bondholders have been seeking to bring a lawsuit in Chicago federal court accusing Caesars Entertainment Corp., Apollo Global Management and TPG of improperly shuffling valuable assets out of the operating unit before pushing it into bankruptcy. By bringing a watered-down version of the same claims, the operating unit, known as CEOC, would be able to control the litigation process -- and possibly avoid court action on the claims altogether.
CEOC argues that its Aug. 9 suit gives it the right to try to settle the creditor claims, worth billions of dollars, as part of its Chapter 11 reorganization plan. A trial on the plan itself is scheduled to start in January.
The operating company asked U.S. Bankruptcy Judge A. Benjamin Goldgar in Chicago Wednesday to cancel hearings on whether the dissident bondholders should be allowed to pursue their claims in his court.
Hours before the hearing was set to begin, a mediator reported progress in settlement talks between the bondholders and parent Caesars Entertainment Corp., or CEC, that could eliminate the legal challenges threatening the Las Vegas-based casino giant.
“There ultimately should be a successful conclusion to the mediation before the conclusion of the confirmation hearing,” the mediator, retired U.S. District Judge Joseph Farnan, said in a report filed late Tuesday in Chicago bankruptcy court. “More time is needed to resolve by mediation the complex issues raised.”
The report was one sign that the heated courtroom battles surrounding CEOC’s bankruptcy could be cooling down. A committee representing bondholders leading the fight against Caesars agreed that a short delay in their request to sue would be acceptable.
Caesars also announced a settlement with a smaller, lower-ranking creditor who had brought claims that mirrored the bondholder allegations.
According to a company regulatory filing Wednesday, Frederick Barton Danner agreed to suspend his lawsuit in New York, one of several that creditors have filed against Caesars. Caesars agreed to pay creditors like Danner 6.4 percent of what they are owed, should the operating company win approval of its reorganization plan. Danner in return, agreed to back the plan.
Central to the dispute over the reorganization plan is whether Apollo and TPG, through their ownership of the Caesars parent, are contributing enough to settle the bondholder claims.
The bondholders say that CEC, at the direction of its owners, 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 has denied the allegations and vowed to prove its actions were a legitimate attempt to restructure CEOC.
In its version of the lawsuit, CEOC repeats almost all the bondholders’ accusations. But CEOC omits claims against current employees, arguing that they would prompt questions from gambling regulators that could interfere with operations.
“We believe that Apollo Investment Fund VI, its manager and their affiliates and partners have at all times acted appropriately,” Eric Kuo, a spokesman for Apollo, said in a statement. “These claims are without merit and will be vigorously defended.”
Stephen Cohen, a spokesman for CEC, also said the claims had no merit.
“These transactions provided immense benefit to CEOC and its creditors,” he said in a statement. “Caesars Entertainment has agreed to contribute substantial value to CEOC and its creditors in settlement of the claims they have raised in an effort to resolve CEOC’s bankruptcy proceedings as quickly as possible.”
TPG, too, called the claims meritless.
“TPG will vigorously contest and defend against this complaint to the extent that this matter proceeds,” the firm said in a statement.
CEC has offered the bondholders cash, an ownership stake and new debt, a package it says is worth about $4 billion. The bondholders want more. A court-appointed examiner in March backed many of their claims and said they might collect as much as $5.1 billion if they sued and won.
At the January trial, CEOC will try to persuade Goldgar to approve its bankruptcy plan and the $4 billion settlement. With the court’s blessing, the settlement would be imposed on the bondholders and they would be barred from pursuing their claims. Otherwise, the claims could be revived.
A committee representing the bondholders said its request to sue shouldn’t be put off until after plan confirmation because some of their claims could be beyond the statute of limitations by then. It asked Goldgar to consider acting on their request by October, slightly later than previously planned -- another indication that the contenders are willing to be flexible while talks continue.
The judge agreed Wednesday and moved the hearing to decide whether bondholders can sue to Oct. 19 from Sept. 12.
The dissident bondholders are the last big creditor group still opposing the reorganization plan. They hold a majority of $5.24 billion in second-lien notes issued by CEOC. Appaloosa Management held more than $880 million in second-lien notes in various investment funds it manages, according to court documents filed in February 2015.
Senior lenders and lower-priority, unsecured creditors back the reorganization plan, but that support could evaporate if the dissidents prevail.
Goldgar also warned Apollo and TPG that they may need to contribute to CEOC’s reorganization if they want to escape from the threat of future litigation. Under the U.S. Bankruptcy code, a judge can bar future lawsuits against a bankrupt company, or related entities, although typically those entities are required to contribute something to creditors in order to win that protection.
“The plan the debtors want to confirm would release those claims, yet as far as I know, none of those companies and individuals, all of whom would benefit from the proposed release, has contributed so much as a dime under the plan,” Goldgar said in court.
Under the reorganization plan, CEOC would be split into two main units: 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.
The 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 lower-ranking bondholders, including the second-lien noteholders, would share $1 billion in 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).