Caesars loses vital court ruling in Chicago

Caesars loses vital court ruling in Chicago

Tuesday, August 30, 2016 Posted by Andy McCarron
A looming trial in New York could seal company’s fate

Caesars Entertainment Corporation (CEC) is once again on the brink of following its own operating entity into bankruptcy after the judge in a Chicago court hearing ruled on Friday last week that the company will have to face minority creditors in court in New York.

Having offered two previous stays, judge Benjamin Goldgar failed to extend any further lifelines to the company after a three-day hearing last week. It sets the stage for proceedings to go ahead in New York this week.

Second-lien bondholders have brought the action against Caesars Entertainment Operating Company (CEOC) suggesting it reneged on guarantees issued prior to the entity entering into Chapter 11 proceedings in May last year.

CEC had argued that another stay would be given to give the company further time to work out a deal with the second-lien bondholders. Caesars had previously come to understandings with creditors representing $14bn of the total $18bn debt. However, the minority bondholders are refusing to budge in their request for better terms than the less-than-50 cents on the dollar terms currently on the table.

The case last week turned on the non-contributions to date from CEC’s majority owners, private equity firms Apollo Global Management and TPG Capital Management, into the compensation pot. CEC has itself pledged a further $4bn but judge Goldgar noted that neither the owners nor the individual partners at either firm were putting anything into the pot while still getting broad releases from any liability.

Commentators suggest the ruling will out pressure on Apollo and TPG to seek a deal before CEC is itself forced to seek bankruptcy protection.

Back in April, a court examiner found that CEC had pursued its strategy of hiving off CEOC despite almost certainly being aware that the unit was effectively bankrupt from its formation in 2008, and was “certainly” so for the last three years. Examiner Richard David suggested that ever since CEOC was formed, the owners and management of CEC had been attempting to create enough runway for a company that would never be able to pay off its debts.

Shares in CEC plummeted 12% on the news last week.

The news comes less than a month after CEC sold its social casino business Playtika for $4.4bn to a group of Chinese investment funds including Jack Ma’s Giant Investment. The bulk of the proceeds have been pitched into the bankruptcy pot.

Totally Gaming says: The decision of the judge in Chicago is another blow for CEC and its owners Apollo and TPG. Attention will now turn to the New York courtroom this week where the second-lien bondholders will have a chance to state their case that CEOC reneged on commitments made before the company entered into bankruptcy protection. That is unless the private equity owners have a – hugely expensive – change of heart. 

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