Restructuring talks between Caesars, bank lenders break off

Caesars Entertainment Corp. has broken off negotiations with several first-lien creditors who had not yet signed on to the company's massive restructuring effort for its largest operating division.

In a filing Monday with the Securities and Exchange Commission, Caesars said the sides failed to reach agreement in the bankruptcy restructuring of Caesars Entertainment Operating Co.

In January, Caesars placed CEOC into Chapter 11 bankruptcy and wants to convert the division into a real estate investment trust. The casinos operated by CEOC cover $18.4 billion of the company's gaming industry-high $22.8 billion of debt. The move would create two companies, a REIT owning the real estate and buildings and an operating company leasing back the casinos.

The restructuring is expected to trim almost $10 billion of debt from the books.

The plan has failed to get full creditor support, although the company has said some 80 percent of the top bond holders have approved the deal. Several lawsuits filed by second tier creditors over the transfer of various casino properties into Caesars Growth Partners could jeopardize the reorganization efforts.

CEOC controls Caesars Palace, Caesars Atlantic City, Harrah's Reno and more than a dozen regional properties.

In the SEC filing, Caesars detailed several steps it offered in the talks with creditors, which are primarily banks.

Among the offers included Caesars paying cash of 5 percent to 10 percent face value of CEOC's first and second lien bank debt to the operating company created by the REIT. CEOC would also 25 percent of its annual free cash flow to pay off second lien creditors and holders of bank debt. Caesars would also make an upfront payment of $62.5 million to creditors.

"At this time (the company and the creditors) have been unable to reach an agreement on the terms of the proposed changes," Caesars wrote in the filing. "Accordingly, as of (Sunday). Caesars has ceased discussions."

Earlier this month, Caesars said its first-lien creditors, who are owed billions, would control the REIT's board of directors.

In July, Caesars said it struck an agreement with a large group of the company's second-tier debt holders on the restructuring that gave the group better terms on their recovery but could delay the exit from bankruptcy by six months. So far, just 20 percent of the bond holders had signed on to the deal.

Caesars has also agreed to allow the real estate company created by the bankruptcy first right to acquire Harrah's New Orleans and Harrah's Laughlin, which are not part of the bankruptcy, and move the properties into the planned REIT.

The casinos controlled by Caesars Growth Partners would also be folded back into the parent company and the division would be dissolved. Caesars owns 57 percent of Caesars Growth Partners.

Caesars was handed a setback this month when the bankruptcy judge said the company could not pursue a fast appeal to his ruling that allows bondholder lawsuits to proceed. Caesars is seeking a fast appeal through the U.S. District Court.

Caesars wants to overturn the ruling, saying four lawsuits by bondholders in New York and Delaware could push the entire Las Vegas-based company into bankruptcy.

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