One Small Hedge Fund Is Carrying On in Battle Over Caesars

  • Trilogy-led group holds $22 million claim in $17 billion case
  • Suit it filed in 2014 could still test Depression-era law

The titans of the investing world have settled their fight in bankruptcy court over the future of the Caesars casino empire. But one tiny band of lenders is pressing on and keeping alive a lawsuit they say is designed to protect small investors.

The bondholder group led by Trilogy Capital Management acknowledges that its case against Caesars Entertainment Corp. won’t upend the carefully negotiated settlement reached this week among creditors owed $17.3 billion. After all, they hold just $22 million in the casino giant’s unsecured bonds, says Barry Kupferberg, director of research for the investment fund.

“We clearly can’t cause all the cards to collapse,” Kupferberg said in an interview.

But that won’t stop Trilogy from pushing a miniature version of the mammoth litigation strategy used by some of the debt market’s biggest players, who for two years bedeviled Caesars and the private-equity giants that control it: Apollo Global Management LLC and TPG Capital. “We believe that Caesars’ actions, cloaked in secrecy, damage our capital markets and we are prepared to fully litigate," Kupferberg said.

Trilogy plans to seek a ruling on Oct. 6 in New York on its lawsuit, which accuses Caesars of violating the 1939 Trust Indenture Act, a federal law designed to protect investors with a minority stake from having key terms of their bonds changed by the majority. 

Caesars bondholders who are owed $5.5 billion, including billionaire David Tepper’s Appaloosa Management and distressed-investing giant Oaktree Capital Group LLC, have agreed to put similar claims on hold. Those claims would then be expunged as part of the bankruptcy of Caesars’ operating unit, which issued the debt.

Important Principle

In addition to trying to recoup its investment, Trilogy is defending an important principle, Kupferberg said. Trilogy accuses Caesars of dropping a repayment guarantee for the debt. To win support for a switch in the bond terms, Caesars paid favored noteholders a premium over the market price for $155 million worth of the notes. Trilogy and other minority holders weren’t given a chance to participate in that deal, which also included moving assets away from creditors, the lawsuit alleges.

“That’s very bad for credit markets,” Newton Glassman, founder of Toronto-based private-equity firm Catalyst Capital Group Inc., said in an interview earlier this month. “The Caesar’s case is so critically important in the U.S. for the capital markets, especially the credit markets, because you have to have certainty of agreements.”

Under an agreement announced Tuesday, Caesars second-lien bondholders who settled will get about 66 cents on the dollar, according to the Las Vegas-based gambling company.

That’s not enough for Trilogy, Kupferberg said. His firm wants to be fully repaid. If he wins, Caesars could be forced to pay $160 million to all the remaining bondholders who hold 5.75 percent notes due in 2017 and 6.5 percent notes due this year. That’s a drop in the bucket, given the billions at stake in the Caesars case, which may help persuade the company to settle.

“We’re too small to impact the entire bankruptcy,” he said.

The bankruptcy case is In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The Trilogy suit is Trilogy Portfolio Co. v. Caesars Entertainment Corp., 14-07091, U.S. District Court, Southern District of New York (Manhattan).

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