\nLaura J. Keller and David Carey, Bloomberg<\/p>\n
\tIf all goes according to Caesars Entertainment Corp.\u2019s plan that started with putting its biggest unit into bankruptcy today, the casino company\u2019s private-equity owners won\u2019t have to give up a penny of their $1.8 billion stake. Creditors (CZR) would see half their claims wiped out.<\/p>\n
\tUsually, 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\u2019s troubled operating subsidiary and its $18.4 billion of debt, while hanging on to their control of its parent.<\/p>\n
\tApollo, 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\u2019s senior bondholders to agree to this plan. Others \u2014 including term-loan holders and more junior noteholders \u2014 are balking.<\/p>\n
\t\u201cThere 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,\u201d Michael Friedman, a partner at Chapman & Cutler LLP, said in a telephone interview.<\/p>\n
\tCharles 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.<\/p>\n
\tSalvaging Equity<\/p>\n
\tApollo, run by billionaire Leon Black, along with TPG and co-investors put up $4.4 billion of equity for Caesars\u2019 $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.<\/p>\n
\tThe key to salvaging some of the equity is to only put Caesars Entertainment Operating Co. \u2014 which owns 29 casinos across the globe \u2014 into bankruptcy. Its creditors are expected to give up about $9.8 billion of their claims, nearly half of their $18.4 billion stake.<\/p>\n
\tCreditors won\u2019t be allowed to touch the parent or its other units Caesars Growth Partners LLC \u2014 which owns casinos including Bally\u2019s Las Vegas and online gaming assets such as the World Series of Poker \u2014 and Caesars Entertainment Resort Properties LLC, which also owns six casinos.<\/p>\n
\tThe 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.<\/p>\n
\tEnergy Future<\/p>\n
\tIf all the Caesars assets were in the same unit, the company\u2019s private-equity sponsors probably wouldn\u2019t be allowed to keep so much of their equity while wiping out junior creditors, according to Julia Winters, a legal analyst at Bloomberg Intelligence.<\/p>\n
\tWhen 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.<\/p>\n
\t\u201cEquity is on the bottom of the stack in bankruptcy,\u201d said Winters, who is based in New York. Equity holders typically \u201ccan\u2019t get a distribution out of a bankruptcy plan if structurally senior creditors are not getting paid.\u201d<\/p>\n
\tRecovery Values<\/p>\n
\tApollo 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.<\/p>\n
\tIn 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.<\/p>\n
\tThe operating unit\u2019s 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.<\/p>\n
\tThe 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.<\/p>\n
\tAppaloosa Investment LP and funds associated with Oaktree Capital (OAK) and Tennenbaum Capital, all junior creditors to the Caesars unit, sought to upend Caesars\u2019 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.<\/p>\n
\tLender Strategy<\/p>\n
\tOnly the most-senior of the unit\u2019s 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\u2019s analysis.<\/p>\n
\tThose lenders aren\u2019t satisfied, either, and have formed a group in opposition to the plan. They\u2019re 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\u2019s private.<\/p>\n
\tCaesars might be able to appease unhappy creditors with equity at the parent company or more cash, Brendel said.<\/p>\n
\tAs long as there is \u201csalvageable value,\u201d Apollo \u201cwill go after it harder than anyone else out there,\u201d David Tawil, president of New York-based distressed hedge fund Maglan Capital LP and a former restructuring attorney, said by telephone. \u201cThey will not just let it go.\u201d<\/p>\n
\tTo contact the reporters on this story: Laura J. Keller in New York at lkeller22@bloomberg.net<\/a>; David Carey in New York at dcarey13@bloomberg.net<\/a><\/p>\n