Caesars said close to deal with top lenders to bankrupt unit

NEW YORK — Caesars Entertainment Corp. is close to winning support from a group of its highest-ranking lenders for a restructuring of its biggest unit, a deal that would help ease the company’s path in bankruptcy, according to three people with knowledge of the discussions.

Lenders including Blackstone Group LP’s credit arm, a mutual-fund unit of Franklin Resources Inc. and Och-Ziff Capital Management Group are negotiating an agreement to back a reorganization plan the company has crafted with lower-tier first-lien creditors of Caesars Entertainment Operating Co., said the people, who asked not to be named because the talks are private. After a meeting Friday, the deal is expected to be final within a week, the people said.

Caesars had attempted to win over the lenders months before it put the unit into bankruptcy protection in January to restructure $19.9 billion of borrowings. Trying to avoid creditor disputes in bankruptcy, Caesars appealed days before it filed for Chapter 11, offering a $150 million fee to lenders that signed onto the plan to transform the unit into a real estate investment trust.

The most-senior lenders, who said in January they owned more than 56 percent of the unit’s $5.35 billion most-senior securities, balked at the proposal. This round of discussions has been the first since then that they’ve had formal talks with the company and its private-equity sponsors Apollo Global Management and TPG Capital about supporting the plan, the people said.

Gary Thompson, a spokesman for Las Vegas-based Caesars and Rebecca Radosevich, a spokeswoman for Franklin, didn’t immediately respond to messages seeking comment. Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., said he couldn’t immediately provide comment. Lisa Baker, a spokeswoman at TPG at Owen Blicksilver Inc., Peter Rose, a spokesman for Blackstone, and Jonathan Gasthalter, a spokesman for Och-Ziff at Sard Verbinnen & Co., declined to comment.

Caesars, which was taken private by Apollo and TPG in a $30.7 billion leveraged buyout near the peak of the market in 2008, has been struggling to cope with increased competition and a slowdown in spending by consumers. It loaded up the bankrupt unit, which owns three-quarters of the casinos, with most of the debt. The company has lost money every year since 2009.

Securing support from the influential anchor group of lenders for the plan to reorganize the troubled unit would free Caesars to solicit consents from other lenders and potentially deliver the buy-in thresholds that bankruptcy rules require to validate a class of creditors’ votes for a reorganization plan. Caesars would then have backing from its top two creditor classes, whose pre-petition claims totaled $11.7 billion, or nearly 65 percent of the unit’s borrowings.

Caesars would also be able to eliminate a creditor group that is threatening to sue the parent company and its private- equity owners for alleged wrongdoing in actions taken before the bankruptcy. That includes moving assets out of creditors’ reach. First-lien bondholders who’ve signed onto the plan have already said they would release the company and its owners from that potential liability. For that, the Caesars parent agreed to make a $1.45 billion contribution to the reorganization of the unit.

The parent said for the first time last month that the potential liabilities stemming from lawsuits related to the restructuring efforts could imperil its ability to continue operating as a going concern, according to a March 16 regulatory filing.

In return for giving the releases and supporting the plan, lenders will be awarded a recovery in cash and new securities that amount to face-value compensation for the securities they currently own, plus accrued interest that they’re owed, the people said. They’ll also win a longer length of time that the parent company will guarantee lease payments owed to a new property-owning company whose securities they will receive, said the people. Caesars will agree to guarantee the payments for at least five years, said one of the people.

Even if it wrangles the rest of the senior lenders, Caesars still faces junior creditors who oppose its bankruptcy plan. Second-lien creditors persuaded U.S. Bankruptcy Judge A. Benjamin Goldgar this month to allow an examiner in the case to investigate transactions beyond just those that debt holders specifically challenge.

Unsecured noteholders led by MeehanCombs Global Credit Opportunities Master Fund LP sued the bankrupt Caesars and its parent last year. That case’s judge in January allowed the case to go forward against the parent company. Second-lien creditors filed a similar lawsuit.