Caesars Bankruptcy Brawl With Creditors May Be Near Finaleby and
Midnight deadline for restructuring deal is approaching
Bondholders, Caesars waiting for senior lenders to join deal
Caesars Entertainment Corp. is the closest it’s been to ending two years of rancorous court battles with bondholders over who should pay to fix the casino giant’s insolvent operating unit, which can’t afford to cover almost $20 billion in debt.
The company is giving creditors until midnight Friday in New York to accept a sweetened offer of more than $5 billion in cash, new debt and stock in a reorganized business. A group of bondholders that have been the biggest obstacle to the company’s plan has agreed on the framework of a deal, according to people familiar with the talks.
The remaining question is whether more-senior lenders -- who had backed previous iterations of the plan -- are willing to sacrifice some of their gains so the new plan can go through.
Under the old proposal on file in U.S. Bankruptcy Court in Chicago, they were promised cash, stock and debt worth more than the $11.7 billion in bank loans and first-lien bonds they hold. The new proposal requires them to give up “hundreds of millions of dollars” in recoveries, according to terms Caesars announced Wednesday. As of Thursday, at least some senior lenders were hesitating, said the people, who asked not to be identified because the discussions are private.
A deal would put Caesars Entertainment Operating Co. on track to exit one of the biggest bankruptcies of the past decade. Creditors including David Tepper’s Appaloosa Management have been battling the private-equity titans that acquired the company in a 2008 leveraged buyout, Apollo Global Management LLC and TPG Capital.
Representatives of Apollo, TPG and Caesars didn’t respond to requests for comment on the talks.
By signing onto the latest offer, the dissident bondholders would be bringing the bankruptcy “very close to the finish line,” said Julia Winters, a Bloomberg Intelligence analyst in New York and a former bankruptcy litigator.
In exchange for the sweetened offer, bondholders including Appaloosa would be required to drop any legal claims accusing Apollo and TPG and their top executives of plundering the operating company of valuable assets before putting it into bankruptcy. The bondholders, who own the company’s lower-ranking, second-lien notes, have also accused the parent company of reneging on a promise to help pay the operating unit’s debt.
Caesars, Apollo and TPG have all denied the allegations and say their actions were a legitimate attempt to restructure the unit. Caesars has also said the bond terms allowed the company to drop the payment guarantee.
Under the proposal creditors are now weighing, Caesars would boost its contribution of stock, debt and cash by about $1.2 billion to more than $5 billion. This would satisfy second-lien bondholders, who would see their total recoveries go up by $1.6 billion, but only if the higher-ranking creditors agree to reduce theirs.
Various pieces of the Las Vegas-based Caesars empire would be reorganized in and out of bankruptcy to make the deal work.
The non-bankrupt parent, Caesars Entertainment Corp., would combine with its publicly traded affiliate, Caesars Acquisition Co. Creditors of the bankrupt operating unit would own 62 percent of that new company, according to Wednesday’s announcement.
Apollo and TPG would end up controlling about 15.6 percent of this “new CEC”, or about half what they would have gotten under the old plan, Bloomberg Intelligence analyst Philip Brendel calculated.
The bankrupt operating unit would be organized into two new companies. One would operate the casinos as a subsidiary of new CEC. The other would own a large chunk of Caesars’s property and buildings. First-lien bondholders owed $6.35 billion would own the property company and collect rent from the operating company.
The second-lien noteholders would see a jump in recovery on the $5.5 billion they are owed, according to Brendel. Under the old plan, the best they could expect was 55 percent. The current proposal, if it succeeds, would pay them about 68 percent, he said.
Since the bankruptcy began in January 2015, a sticking point for the second-lien investors has been the equity value Apollo and TPG managed to retain in the original proposal. In the new offer, the two firms would see their stakes reduced, but not eliminated. Most equity holders of bankrupt companies typically recover little, if anything.
Winters said the private-equity owners were probably spurred to compromise by pressure from U.S. Bankruptcy Judge A. Benjamin Goldgar, who accused the firms last month of trying to get a “free ride” in bankruptcy while lawsuits against them would be quashed.
“It really compelled Apollo and TPG to fork over” their equity, she said.
The case is In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).