Caesars Entertainment Corp. struck an agreement with a large group of the company‘s second-tier debt holders, which could smooth out the bankruptcy reorganization of the casino operator‘s largest business division.
However, the deal would delay Caesars Entertainment Operating Co.‘s exit from the process by six months.
In a filing with the Securities and Exchange Commission late Monday, Caesars said the agreement gives the creditors, who are owed billions of dollars, "a substantial improvement in recoveries" once the bankruptcy restructuring is completed.
Caesars said the agreement would become effective once 50 percent of the holders have signed on to the plan. Caesars did not say what percentage of the group had approved of the deal. Bloomberg News reported that the group the struck the deal with Caesars owns about 30 percent of debt and includes several hedge fund giants, including Paulson & Co., Canyon Partners and the Soros Fund Management.
Under the agreement, bond holders signing onto to the plan will receive a forbearance fee of at least $200 million in convertible debt to be issued by Caesars Entertainment "in consideration for forbearing in respect to certain alleged defaults."
The announcement gave shares of Caesars Entertainment a boost the stock had not seen in several months. The company‘s stock price rose as much as 27 percent on the Nasdaq on Tuesday, before settling back. Shares closed at $8.02, up $1.47 or 22.44 percent. Shares of Caesars Acquisition Co., which is 57 percent owned by Caesars Entertainment, also jumped on the Nasdaq, closing at $7.78, up 59 cents or 8.21 percent.
In January, Caesars struck agreements with more than 80 percent of its largest lenders to place CEOC into a planned Chapter 11 bankruptcy reorganization. The division controls Caesars Palace, Caesars Atlantic City, Harrah‘s Reno and more than a dozen regional properties.
Analysts said an agreement with a majority of the second-tier creditors was needed to speed along the bankruptcy case, which is being heard by a judge in the U.S. Bankruptcy Court in Chicago. Caesars is facing several lawsuits in New York and Delaware from creditors over the company‘s actions leading up to the bankruptcy.
Bloomberg reported the original plan was to exit CEOC from bankruptcy by February, but the new restructuring plan pushes the date back to July 2016.
Caesars Entertainment has a gaming industry high $22.8 billion in long-term debt, of which $18.4 billion is attached to CEOC. Through bankruptcy, the company hopes to eliminate almost $10 billion of the division‘s debt and convert CEOC into a real estate investment trust.
Among several new commitments announced Monday night, Caesars said it would move Harrah‘s New Orleans and Harrah‘s Laughlin ’ properties not currently part of the bankruptcy ’ into the planned REIT. Harrah‘s New Orleans is controlled by Caesars Acquisition, which would be folded back into the parent company at the conclusion of the bankruptcy.
Caesars took on the bulk of its debt in a $30.7 billion buyout by private equity firms Apollo Global Management LLC and TPG Capital.
Under terms of the new agreement, Caesars will contribute a 5 percent equity stake in the REIT to the second lien debt holders, who will also have options, under certain conditions, to purchase a minimum of 2.5 percent REIT shares issued to first-lien debt holders.
Caesars officials did not make any comments about the restructuring plans.
The deal was announced a few hours after the company‘s lawsuit against a group of creditors was dismissed by a New York state court judge.
Caesars alleged in an August 2014 lawsuit that the second-lien creditors harmed the company through false allegations and demand letters.
According to a court filing, Caesars offered to withdraw the lawsuit, although it wanted to leave open the possibility of refiling it, which prompted the second-lien bond holders to seek a dismissal.
Caesars stock hit a 52-week low in June of $5.94 as investors worried the outcome of the legal proceedings could leave the casino operator in the hook to pay more than $1 billion in debt obligations. Several analysts believe an adverse decision against the company could force Caesars to follow CEOC into bankruptcy.
TheStreet.com rating team placed a "hold" recommendation on Caesars shares, telling investors the company has "weak operating cash flow, a generally disappointing performance in the stock itself and generally higher debt management risk."
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