Laura J. Keller and David Carey, Bloomberg
If all goes according to Caesars Entertainment Corp.’s plan that started with putting its biggest unit into bankruptcy today, the casino company’s private-equity owners won’t have to give up a penny of their $1.8 billion stake. Creditors (CZR) would see half their claims wiped out.
Usually, equity holders rank last for repayment in a bankruptcy. Yet Apollo Global Management LLC (APO) and TPG Capital, which bought Caesars in 2008, are pushing a proposal that would allow them to isolate the Las Vegas-based company’s troubled operating subsidiary and its $18.4 billion of debt, while hanging on to their control of its parent.
Apollo, known for its aggressive dealings with creditors when its investments go awry, was the lead negotiator with lenders during the past four months, according to four people with knowledge of the talks. It got more than two-thirds of the operating unit’s senior bondholders to agree to this plan. Others — including term-loan holders and more junior noteholders — are balking.
“There are going to be a lot of creditors with a lot of incentive to push back very hard on this attempt to basically retain the equity for this company,” Michael Friedman, a partner at Chapman & Cutler LLP, said in a telephone interview.
Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., and Owen Blicksilver, a spokesman for TPG at Owen Blicksilver Public Relations, declined to comment. Stephen Cohen, a spokesman for Caesars at Teneo Holdings LLC, also declined to comment.
Salvaging Equity
Apollo, run by billionaire Leon Black, along with TPG and co-investors put up $4.4 billion of equity for Caesars’ $30.7 billion buyout, which was struck before the credit crisis unfolded in 2008. In 2013, Apollo and TPG injected at least $600 million in Caesars Growth Partners LLC, a group of casinos spun out of the company that year.
The key to salvaging some of the equity is to only put Caesars Entertainment Operating Co. — which owns 29 casinos across the globe — into bankruptcy. Its creditors are expected to give up about $9.8 billion of their claims, nearly half of their $18.4 billion stake.
Creditors won’t be allowed to touch the parent or its other units Caesars Growth Partners LLC — which owns casinos including Bally’s Las Vegas and online gaming assets such as the World Series of Poker — and Caesars Entertainment Resort Properties LLC, which also owns six casinos.
The parent and Caesars Growth are public, with stocks worth about $3 billion combined. Those companies will merge together so the parent has more money to support the restructuring, the company announced last month.
Energy Future
If all the Caesars assets were in the same unit, the company’s private-equity sponsors probably wouldn’t be allowed to keep so much of their equity while wiping out junior creditors, according to Julia Winters, a legal analyst at Bloomberg Intelligence.
When Energy Future Holdings Corp. went bankrupt in April, its three private-equity sponsors agreed to relinquish almost all of their ownership stakes in the Dallas-based power producer. TPG, KKR & Co. and Goldman Sachs Capital Partners would have taken less than 1 percent of the reorganized company in that proposal. The company abandoned the plan last year and is still negotiating with creditors.
“Equity is on the bottom of the stack in bankruptcy,” said Winters, who is based in New York. Equity holders typically “can’t get a distribution out of a bankruptcy plan if structurally senior creditors are not getting paid.”
Recovery Values
Apollo and TPG propose keeping their combined about 61 percent stake in the parent company and the 66 percent they own of Caesars Growth. They want to reorganize the operating unit into a real estate investment trust and have the option to buy equity in that, too, through the parent company.
In its Chapter 11 filing in Chicago today, the operating unit, along with more than 100 affiliates, listed about $12.4 billion in assets and $19.9 billion in liabilities.
The operating unit’s first-lien bondholders will give up 11.3 percent, or $717 million, of their $6.345 billion in claims under the plan, according to Philip Brendel, a credit analyst at Bloomberg Intelligence.
The creditors underneath them, second-lien bondholders who own $5.25 billion of debt, will be mostly wiped out. They will recover up to 10.4 percent of their investment in the form of equity in the reorganized company, according to Brendel.
Appaloosa Investment LP and funds associated with Oaktree Capital (OAK) and Tennenbaum Capital, all junior creditors to the Caesars unit, sought to upend Caesars’ plan by putting the unit into a free-fall bankruptcy. They filed a petition Jan. 12 with a Delaware court to push the involuntary Chapter 11 proceedings.
Lender Strategy
Only the most-senior of the unit’s creditors, holders of $5.36 billion of term loans, will get back what Caesars says is equal to their original investment in the form of cash, new debt and some equity, according to Brendel’s analysis.
Those lenders aren’t satisfied, either, and have formed a group in opposition to the plan. They’re seeking accrued interest in addition to a recovery of 100 cents on the dollar, according to two people with knowledge of the strategy, who asked not to be named because it’s private.
Caesars might be able to appease unhappy creditors with equity at the parent company or more cash, Brendel said.
As long as there is “salvageable value,” Apollo “will go after it harder than anyone else out there,” David Tawil, president of New York-based distressed hedge fund Maglan Capital LP and a former restructuring attorney, said by telephone. “They will not just let it go.”
To contact the reporters on this story: Laura J. Keller in New York at lkeller22@bloomberg.net; David Carey in New York at dcarey13@bloomberg.net
To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Caroline Salas Gage
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