Caesars Entertainment Corp. struck back Friday against a group of 13 bondholders that filed a notice of default against the casino giant, calling the claims “baseless” and vowing to defend itself.
The company, which controls 10 Strip resorts and carries a gaming industry-high $23 billion in long-term debt, revealed the default notice in a filing with the Securities and Exchange Commission.
Caesars said the investment group oversees at least 30 percent of $3.7 billion in second lien 10 percent bonds due in 2018.
The collection of companies, which according to Bloomberg News includes Oaktree Capital and Appaloosa Management, have objected to various moves Caesars undertook in the past year to alleviate its debt. Several of the transactions involved the creation of Caesars Growth Partners and the transfer of ownership in six hotel-casinos to the new company, including The Cromwell, Quad, Bally’s Las Vegas and Harrah’s New Orleans.
Analysts worried the default notice could force a bankruptcy reorganization filing by Caesars, which is considered the gaming industry’s largest casino operator with more than 50 properties across the U.S.
One analyst, who asked not to be identified, said there were two courses of action with the default notice; litigation between the two or forcing Caesars into a Chapter 11 reorganization.
The analyst said he didn’t think the bondholders had enough power to force a bankruptcy filing.
But the action prompted a stern response from Caesars’ top executive.
“We will not allow our company, our employees and the communities in which we operate to be held hostage by a minority of holders whose interests are contrary to the long-term health of the company,” Caesars Chairman Gary Loveman said.
Nevada gaming regulators declined comment on the default notice. Both the Gaming Control Board and Nevada Gaming Commission approved the transfers of the assets from Caesars Entertainment to Caesars Growth Partners.
KDP Investment Advisors gaming analyst Barbara Cappaert told investors in a research note the bondholders appeared to be fighting back to gain a better position for what she termed “an inevitable” debt restructuring.
“This move, if successful, will accelerate the maturities under the bank credit facility, the first lien secured notes and the second lien secured notes, if Caesars does not offer a satisfactory remedy,” Cappaert said.
However, she said the second lien holders “are dwarfed” by $11.7 billion in the first lien debt in Caesars’ financial structure.
“This is a tricky business,” Cappaert said.
In the statement, Caesars said it has “acted aggressively” to improve the company’s performance through several avenues, including investment into business, changes in capital structure management and operational improvement.
“Over the past several years, the company and its affiliates have completed nearly 50 capital markets transactions and more than $3 billion has been invested to expand and upgrade the Caesars network,” the company stated.
In the SEC filing, Caesars said it does not believe it has defaulted on the bonds and termed the claims “meritless.”
The company said the sale of the hotel-casinos and other assets to Caesars Growth Partners was handled “through a rigorous, independent process” that brought the company “fair value” for the resorts and businesses.
Caesars Entertainment owns 57 percent of the affiliated company.
Caesars Growth Partners also owns Planet Hollywood, Caesars’ share in the planned $442 million Horseshoe Casino Baltimore, a hotel tower at Caesars Palace and Caesars Interactive, which controls the company’s social gaming products. real money online gaming websites and the World Series of Poker.
A request for comment from Oaktree Capital was not returned.
Caesars was taken private in 2008 by Apollo Global Management and TPG Capital in a $30.7 billion buyout.
Shares of Caesars Entertainment, which are traded on the Nasdaq, fell 56 cents or 3.03 percent Friday to close at $17.91. Caesars Acquisition, the publicly traded arm of Caesars Growth Partners, fell 87 cents or 7.07 percent to close at $11.43 on the Nasdaq.
Contact reporter Howard Stutz at firstname.lastname@example.org or 702-477-3871. Follow @howardstutz on Twitter.