(Bloomberg) — Swaps protecting Caesars Entertainment Corp. investors from default jumped to a record after the largest U.S. casino operator reached an agreement with lenders to turn its biggest unit into a real estate firm, indicating the market has priced in almost certain odds of a bankruptcy filing within a year.
The derivatives rose after two people with knowledge of the company’s negotiations with creditors said Caesars’ most-senior lenders agreed to the principles of a restructuring plan. Credit swaps protecting against a Caesars default for one year rose to an upfront cost of 81.5 percent, according to data provider CMA.
The proposal already had the backing of some bondholders, the people said yesterday. The company needs the support of the two creditor groups to impose a reorganization plan on lower- ranking creditors that would receive little in a recovery.
Caesars, which has lost money every year since 2009, has been negotiating with senior creditors to reduce Caesars Entertainment Operating Co.’s $18.4 billion of debt. It was taken private for $30.7 billion in 2008 by Apollo Global Management LLC and TPG Capital in one of the largest leveraged buyouts in history.
The Las Vegas-based company gained the support of term-loan holders by offering them more cash, the people said yesterday. The proposal would put the largest unit into bankruptcy as soon as Jan. 14 and allow it to reorganize into a real estate investment trust, other people with knowledge of the matter said.
Lender Exits
Caesars’ $1.25 billion of 8.5 percent, first-lien notes due February 2020 climbed 3.3 cents to 80 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
After lender Silver Point Capital LP abandoned the negotiations on Nov. 19, according to people with knowledge of the matter, Caesars revealed that it had offered the first-lien bondholders 93.8 cents in cash, equity and new debt in the restructuring.
Holders of more junior securities would get a minimal amount of equity under the reorganization proposal, according to the company’s plan. The $3.6 billion of 10 percent, second-lien notes due December 2018 fell 0.5 cent to a record-low 12.5 cents today, Trace data show.
Shares rose 1.1 percent to $16.31.
The company has received four notices of default from creditors who say it broke an agreement when it transferred assets to an affiliate. The fourth was filed yesterday from the trustee of a first-lien bond.
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