Steven Church, Bloomberg · September 24, 2015 at 12:46 pm
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(Bloomberg) — Caesars Entertainment Corp. is at a $2 billion impasse with creditors it hopes will help keep it from sliding into bankruptcy alongside its operating unit, two people familiar with the negotiations said.The casino company and a committee of junior bondholders haven’t had substantive talks since last month, said the people, who requested anonymity because the negotiations are private. The bondholders are asking for about $2 billion more than Caesars has offered, according to a report by Bloomberg Intelligence analysts Philip Brendel and Julia Winters.
The bad news for Caesars doesn’t end there. It also lost the backing of another group of creditors who refused to extend a deadline for a proposed deal to restructure the company’s insolvent subsidiary.
Those creditors include a few major equity holders who may see their stakes wiped out in any bankruptcy of the parent. Nevertheless, they chose to let the deal expire even though it included a provision halting a lawsuit that threatens to push Caesars into court protection.
Filed in Manhattan federal court, the suit by a creditor trustee claims Las Vegas-based Caesars illegally broke a promise to help repay debt owed them. The company has warned that if a judge forces it to cover that debt, which is in the billions of dollars, it will be forced to file bankruptcy.
Setbacks
The setbacks for Caesars come just weeks after it claimed to be near its goal of enough creditor support to obtain court approval for the bankrupt unit’s reorganization. Less than a month ago, Caesars said in a press release that its success in negotiations “paves the way” to the bankruptcy’s end.
“Part of the game of getting lenders to roll over and agree is making them believe that other lenders have agreed the deal is the best the lenders are likely to get,” Erik Gordon, a law professor at the University of Michigan’s business school, said in an interview about the Caesar’s announcement.
The junior bondholders seeking a bigger payout in the operating unit’s bankruptcy include Oaktree Capital Group LLC, Appaloosa Management LP and Tennenbaum Capital Partners LLC. Those firms, which rank among the biggest investors in the distressed-debt market, are battling Apollo Global Management LLC and TPG Capital Management LP, the private equity giants that led a $30.7 billion leveraged buyout of Caesars in 2008.
Apollo and TPG are trying to maintain controlling stakes in the parent company and the bankrupt operating unit. Charles Zehren, a spokesman for Apollo, and Luke Barrett, a spokesman for TPG, didn’t immediately return requests for comment on the talks.
How Much
Both Caesars and the junior bondholders agree on the broad outlines of the operating unit’s reorganization.
The unit, which owns Caesars Palace in Las Vegas and more than a dozen other casinos around the U.S., would be split into two new companies. One would own the land on which the casinos sit and the other would operate the resorts.
Structuring the ventures as a real estate investment trust would save on taxes. The operating unit would lease resorts from the property-owning unit with much of the monthly rent going to pay creditors.
What the two sides differ on is how much the junior bondholders should recover. The Oaktree group sent Caesars an offer that threatened to wipe out much of the $4.4 billion that Apollo, TPG and others invested when they took the gambling company private. Caesars, meanwhile, proposed a reorganization plan that would allow Apollo and TPG to retain a large stake in the parent, while imposing deep cuts on the debt held by the Oaktree group and all other lower-tier creditors.
Far Apart
Junior bondholders would have collected about 58 percent of what they are owed if their proposal was accepted by Caesars and approved by the court, Brendel of Bloomberg Intelligence said. Under Caesars proposal, the junior bondholders and all other lower-ranking creditors would get back 18 percent.
Both sides are probably waiting for a ruling in the New York lawsuit, Brendel said in an interview.
If Caesars loses, “they will have to seriously look at the second-liens offer, versus what shareholders would get back in bankruptcy,” Brendel said.
Michael Freitag, a spokesman for Caesars’ operating unit, Carissa Felger, a spokeswoman for Oaktree, and Bruce Bennett, the lead lawyer for the noteholder committee, declined to comment.
The junior bondholders had been divided over whether to accept Caesars’ last offer, which included as much as $400 million in new notes that could be converted into equity. The creditor committee rejected that proposal, countering with the Oaktree-backed offer.
Deal Expires
A minority of the bondholders had accepted the deal on the condition that it would expire Sept. 18 if Caesars failed to get 50.1 percent of other second-tier noteholders to sign on. On Sept. 21, Caesars said the minority refused to extend the pact.
Without the support of that group, the company is back to square one, with only its most senior lenders supporting the reorganization proposal, including Brigade Capital Management, LP and Elliott Management Corp.
Should the logjam break, any deal would still need to overcome opposition from a committee of the lower ranked, unsecured creditors, and win approval by the judge in Chicago overseeing the bankruptcy.
To succeed without more creditor backing, Caesars would need to defeat the lawsuit pending in Manhattan federal court.
The bankruptcy case In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).
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