Caesars claims key support to begin debt overhaul plan

Caesars Entertainment Corp. said on Friday it has garnered enough support from key creditors to carry out its $18.4 billion debt restructuring plan for its operating unit, which will soon file for bankruptcy.

Under the plan, the operating unit will be split into two companies, one that runs 44 casinos in 13 states and a property company.

The plan will reduce the debt associated with Caesars Entertainment Operating Co. Inc. to $8.6 billion from $18.4 billion.

The casino operator has struggled for years, particularly outside Las Vegas, as gaming options have proliferated in the United States. Caesars has been weighed down with debt from a $29 billion leveraged buyout of what was then known as Harrah’s Entertainment Corp in 2008 by TPG Capital and Apollo Global Management.

The restructuring plan commits Caesars to put the operating unit into bankruptcy by Jan. 20.

Despite the agreement, Caesars could have a fight on its hands to convince a judge to enforce it on hold-out creditors.

“I don’t think we’ve seen the fireworks in this one yet,” said David Tawil, president of Maglan Capital, a hedge fund that invests in corporate restructurings.

The agreement with first-lien noteholders follows months of talks and corporate reshuffling, and prompted junior creditors to sue in New York and Delaware state courts. Those lawsuits allege that choice assets were put beyond creditors’ reach for the benefit of the parent company shareholders and the company’s private equity backers.

While the bankruptcy will stay the lawsuits by junior creditors, at least against the operating unit, the junior noteholders could pursue legal claims in bankruptcy court.

Two-thirds support from first-lien noteholders gives Caesars the required support to enforce its bankruptcy plan on those creditors who oppose it. However, it still must prove the plan is fair, which could prompt a fight, given that the junior creditors are likely to get next to nothing while shareholders would benefit.

Sshares of Caesars Entertainment fell 25 cents, or 1.78 percent, to close at $13.83 on Friday amid a broad market sell-off that saw the Dow drop 171 points. The stock is above lows hit in October of around $8.51.