(Bloomberg) — Caesars Entertainment Corp.’s highest-ranked lenders spurned the casino company’s efforts to restructure its most indebted unit, imperiling tentative agreements reached over three months of talks with a broader group of creditors.
KKR & Co. and Franklin Resources Inc. were among holders of the company’s bank loans that exited the confidential negotiations, said two people with knowledge of the matter who didn’t want to be named because the creditors weren’t publicly identified. BlackRock Inc., the world’s biggest asset manager and an owner of the company’s first-lien bonds, also left the talks, people with knowledge of that move said.
The casino operator has been working to seal an agreement with its creditors to put the Caesars Entertainment Operating Co. unit and its $18.4 billion of debt into Chapter 11 bankruptcy by Jan. 15. The subsidiary would then be split into a real estate investment trust that owns its properties and another unit that would manage them.
The stalled discussions, outlined in statements from the creditors late yesterday in New York, come just before Caesars must decide whether to make about $224 million in interest payments to lower-ranking bondholders that the senior lenders don’t want paid. The creditors released 550 pages of documents detailing Caesars’ plans.
Bondholder Deal
The company reached an informal agreement this week with most first-lien bondholders just as the other creditors stepped out of the talks, according to two people with knowledge of the discussions, who asked not to be identified because the matter is private.
Shelving the negotiations means that Caesars must now decide whether to proceed with the bankruptcy plan without the blessing of its highest-ranking lenders. The company may also seek to bring them back into the talks. By leaving the negotiating table, the firms lift restrictions that prevented them from trading Caesars’ debt.
Shares of Caesars dropped 12 percent to $13.10 as of 3:02 p.m. in New York. The operating unit’s $1.5 billion of 9 percent first-lien notes due February 2020 dropped 1.75 cents to 74 cents on the dollar, according to Trace, the Financial Industry Regulatory Authority’s bond-price reporting system.
‘Substantial Progress’
Caesars, which was loaded with debt after Apollo Global Management LLC and TPG Capital took it private for $30.7 billion in 2008, is seeking to reorganize after losing money every year since 2009. It’s been in talks since September to restructure the operating company’s borrowings with two groups — the holders of the bank loans, and another group that holds the company’s first-lien bonds.
“We have made substantial progress toward an agreement,” Stephen Cohen, a spokesman for Caesars at Teneo Holdings LLC in New York, said in an e-mailed statement today. Even with the departure of the senior lenders, “the company remains in active discussions with creditors in an effort to reach an agreement in the near term.”
Robin Wagge, a spokeswoman at Rubenstein Associates Inc. for the lender group, didn’t return calls seeking comment. Katherine Ewert, a spokeswoman for BlackRock, and Daniel Eggermann of Kramer Levin Naftalis & Frankel LLP, the law firm representing the first-lien bondholder group, declined comment.
Oral Agreement
The bank-loan group said in a statement yesterday that it had reached an “oral agreement in principle with the company on certain material economic terms” for a restructuring in bankruptcy court. That deal was contingent upon the company reaching an agreement under the same terms with both sets of creditors in the talks, they said in the statement yesterday. Caesars hadn’t yet done so when they left negotiations, they said.
Caesars’ proposal would turn the operating company into a REIT with a landlord unit carrying leverage of about 10 times debt to earnings and a management unit carrying leverage of 5.5 times, according to documents the lenders released. The units together would have $8.6 billion in debt, the documents show.
In addition to KKR and Franklin, Blackstone Group LP’s GSO Capital credit unit, HG Vora Capital Management LLC, and Och- Ziff Capital Management Group LLC pulled out of talks with Caesars, said two people with knowledge of the moves.
Representatives of KKR, GSO, HG Vora and Och-Ziff declined comment. A spokeswoman for Franklin didn’t return a message left for comment.
Bondholders engaged in Caesars restructuring talks alongside BlackRock have included Elliott Management Corp., Pacific Investment Management Co., Beach Point Capital Management LP, Brigade Capital Management LLC and JPMorgan Asset Management Inc., people told Bloomberg in September.
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