Junior creditors try to block Caesars planned restructuring

Caesars Entertainment Corp. is quickly finding out the planned restructuring of the casino company’s primary business unit won’t be a smooth process.

On Monday, junior level creditors — who believe they will be cut out of the restructuring efforts — filed paperwork in Delaware to place Caesars Entertainment Operating Co. into an involuntary Chapter 11 bankruptcy. The move is an attempt to stop a restructuring deal between Caesars and its senior creditors.

Last week, Caesars announced 67 percent support from its senior creditors for a plan that would put CEOC into Chapter 11 bankruptcy protection voluntarily and turn it into a real estate investment trust. The move would eliminate almost $10 billion of the business unit’s $18.4 billion of debt.

However, lower ranking creditors, led by Appaloosa Investment with support from Oaktree Capital and Tennenbaum Capital, asked the court to appoint an examiner to investigate claims that insiders “plundered” the unit, paying themselves hundreds of millions of dollars while moving assets out of the junior creditors’ reach.

Appaloosa said second-lien noteholders would never receive a $225 million interest payment that was skipped last month under the Caesars plan.

In an emailed statement, Caesars Entertainment called Monday’s filing “meritless” and a “transparent attempt to thwart” the restructuring. Caesars said more than two-thirds of CEOC’s first-lien noteholders have agreed to the company’s plan.

“The action is designed to injure CEOC while these junior creditors attempt to boost their standing,” the company said. “CEOC plans to proceed toward the implementation of the previously announced restructuring agreement.”

KDP Investment Advisors gaming analyst Barbara Cappaert said in a research note that Caesars may have enough support from its first-lien holders to negate the involuntary bankruptcy filing by the junior level group.

“We are not sure that this will improve the lot of the second lien holders given that the company will counter with the consents from first lien creditors,” Cappaert said.

Caesars, which carries a gaming industry-high $22.8 billion in longterm debt, said in December it reached agreement on the restructuring with its primary lenders after several months of face to face talks. As part of the plan, another operating affiliate, Caesars Growth Partners, would be merged back into the parent company.

The deal would simplify Caesars’ corporate structure, with the merged company owning 10 Strip resorts; The Linq retail, entertainment and dining complex; and the High Roller observation wheel.

The $3.2 billion merged company would provide Caesars $1.7 billion in cash for the reorganization.

Caesars is expected to file the bankruptcy reorganization plan later this week. It is unclear where the plan will be filed. According to a regulatory filing, Caesars believes the restructuring will take more than a year to complete. The company also said the restructuring would make all of its units cash flow positive.

Also on Monday, Caesars announced it was seeking two-thirds support from its bank lenders for the restructuring. The company is offering $150 million to pay for the bank’s consent fee and proceeds from various convertible debt sales.

Cappaert thought the incentives would be enough to sway widespread support among bank debt holders.

“Together with the first lien noteholder acceptance, the company can march into bankruptcy court with a plan that has a reasonable chance of being confirmed,” Cappaert said.

Caesars, formerly known as Harrah’s Entertainment, has been carrying its debt since the company’s $29 billion private equity buyout by TPG Capital and Apollo Global Management in 2008.

Caesars is now the nation’s largest casino operator, with almost 40 properties in 14 U.S. states and the Canadian province of Ontario.

CECO is the largest of the Las Vegas-based company’s divisions and controls the flagship Caesars Palace, Harrah’s Reno, Caesars Atlantic City, and several regional properties. The REIT concept would split CEOC into two companies, including one to own the real estate for many of the company’s casinos. A second company would manage the properties.

In a statement Monday, Caesars Chairman Gary Loveman said the company’s restructuring plan has gained “broad-based support” from institutional investors and exceeded the thresholds needed to take the matter into a bankruptcy court.

“In response to inquiries from certain of our bank lenders, we have decided to seek their support to help facilitate a smooth and efficient restructuring, which is in the best interest of all stakeholders,” Loveman said.

On Monday, shares of Caesars Entertainment declined 58 cents or 4.19 percent to close at $13.25 on the Nasdaq.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Find him on Twitter @howardstutz.