Steven Church, Bloomberg · January 26, 2015 at 10:04 am
Caesars Entertainment Operating Co. opened its $20 billion bankruptcy fight Monday, pitting creditors against the gambling company’s controlling shareholders, Leon Black’s Apollo Global Management and David Bonderman’s TPG Capital.
The first order of business: picking a courthouse.
Some stakeholders want the case heard in Wilmington, Delaware, where lower-ranking noteholders filed an involuntary bankruptcy petition against the main operating unit of Caesars Entertainment Corp. Jan. 12. They say the biggest creditors, and the parent company’s top executive, live on the East Coast.
Caesars filed its own Chapter 11 case in Chicago Jan. 15, bypassing the court in its hometown of Las Vegas. The company’s main bankruptcy law firm is based in Chicago and has deep roots in the city’s legal community.
Each side has questioned the motives behind the other’s choice of venue, and the decision could make a big difference to Apollo, TPG and other insiders in a restructuring effort that has already spawned several lawsuits.
Federal courts in Chicago apply a looser standard when deciding whether to release company affiliates, owners or insiders from liability related to a bankruptcy. Such third-party releases are harder to come by in Wilmington, according to Howard Seife, a bankruptcy attorney at Chadbourne & Parke LLP in New York who isn’t involved in the case.
One Reason
“That may be one of the reasons the debtor would prefer a filing in Chicago,” Seife said.
A Caesars spokesman, Stephen Cohen, declined to comment on whether the handling of legal releases affected the choice of Chicago.
The judge who gets the case will referee an expensive legal fight in which lower-ranking creditors will try to lay claim to assets, including a Las Vegas Strip casino, that Caesars shifted to other units and to undo a $1.75 billion refinancing deal.
“Each side is trying to get in front of a particular court because of how they think that court might rule,” said Charles Tabb, a bankruptcy specialist and professor at the University of Illinois College of Law in Champaign. Tabb has not worked on the Caesars matter, although his law firm, Foley & Lardner LLP, is involved in the bankruptcy.
Caesars has accused the lower-ranking creditors of trying to disrupt a pre-bankruptcy deal with senior bondholders. The lower-ranking creditors say Caesars insiders are trying to dodge responsibility for their actions by picking the court that’s more receptive to shielding insiders.
Two Judges
Under federal rules, the judge overseeing the petition filed first, U.S. Bankruptcy Judge Kevin Gross in Wilmington, has the option of keeping the case. He began hearing arguments Monday on whether to send the case to his counterpart in Chicago, A. Benjamin Goldgar, who has the action filed by Caesars.
Gross had scheduled a two-day hearing, but warned the court may close because of a snowstorm and urged the participants to submit all evidence and arguments Monday. A blizzard has been forecast to hit the east coast of the U.S., dumping as much as 3 feet (91 centimeters) of snow in some areas on Monday and Tuesday.
A coalition of senior lenders and junior creditors say Wilmington is the logical venue because so many of the hedge funds and other investors are based on the East Coast and regularly travel to the city when they participate in other big Chapter 11 cases. They also said Caesars Entertainment Chairman and Chief Executive Officer Gary Loveman has a home in Massachusetts.
The Wilmington camp, owed $3.5 billion by the operating unit, includes hedge fund manager Silver Point Capital and money managers BlackRock Financial and Franklin Mutual Advisers.
While more big corporate bankruptcies play out in Wilmington or Manhattan, Chicago was the site of several large cases, including those of United Airlines and Kmart.
Key Resorts
In its filings, Caesars said that it has key resorts in the Midwest and that Chicago is closer to its base of operations in Las Vegas. A lawyer for the company also said the city is conveniently situated in the middle of the U.S.
The executive who runs the operating unit, John Payne, lives in New Orleans and filed a statement with the court pushing for Chicago because the Midwest is home to the company’s largest concentration of U.S. casinos.
Kirkland & Ellis LLP, Caesars’ bankruptcy counsel, is based in Chicago, and the firm’s top restructuring lawyer, James Sprayregen, is familiar with the court there. He was the lead attorney for United Airlines during its Chicago bankruptcy from 2002 to 2006.
Neither location is the most logical, according to Tabb, the Illinois law professor. The obvious choice would have been Las Vegas, where the most valuable Caesars assets are located, he said.
Delaware Incorporation
The Caesars parent, which isn’t in Chapter 11, and the bankrupt operating unit are both incorporated in Delaware, where managers appear to have initially planned to file the case, according to deal documents made public by creditors before the bankruptcy filings.
Holding the case in Chicago may make it harder for the lower-ranking creditors to revoke liens on cash that the company gave senior creditors on Oct. 16. The Chicago filing came 91 days after the lien was granted, and such deals are tougher to challenge after 90 days.
Since the Wilmington case was filed 88 days after the lien agreement, creditors would have an easier time revoking it there.
Whichever judge winds up overseeing the case could simply deem the Jan. 12 filing date the official start of the bankruptcy, putting the lien in play.
The intensity of the dispute has surprised Tabb, who says the choice may not matter much, especially for a Las Vegas-based global casino empire.
“If you are not going to be in Nevada, you can be anywhere,” he said.
The voluntary case is In re Caesars Entertainment Operating Co. (CZR) Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The involuntary case is In re Caesars Entertainment Operating Co., 15-10047, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Replies:
No replies were posted for this topic.
