Some members of Congress oppose Caesars’ casino REIT plan

WILMINGTON, Del. — Some U.S. Congress members urged Treasury Secretary Jacob Lew to deny casino operator Caesars Entertainment Corp. a favorable tax ruling relating to the company’s plan to create a trust to own its hotels and resorts, saying in a letter that doing so would amount to a taxpayer subsidy.

Fifteen Congress members said in a May 26 letter viewed by Reuters on Wednesday that Caesars’ plans to reorganize its bankrupt main operating unit into a casino operator and creditor-controlled REIT abuses the original intent of the trusts, which were designed to allow small investors to diversify into real estate.

Caesars put the unit into bankruptcy early last year. The real estate investment trust spinoff provides favorable tax treatment and the trusts are more highly valued by investors, increasing the recovery for creditors who are owed $18 billion.

The company applied for what is known as a private letter ruling from the Internal Revenue Service last year to confirm that the REIT would be treated as a tax-free separation. Caesars has warned that if it fails to get tax-free status it could incur significant liabilities and undermine the value of the reorganization.

“The REIT would effectively shelter a considerable portion of the casinos’ profits, thus functioning as a taxpayer-funded subsidy to one of the largest casino companies in the U.S. and its private equity owners,” said the letter.

Caesars and the Treasury Department declined to comment.

Congress took steps to curb REITs last year, which exempted Caesars because it had already applied for a ruling from IRS.

Caesars is controlled by Apollo Global Management and TPG Capital, and the pair have been embroiled in a costly and bitter legal battle with its hedge fund creditors over the Caesars bankruptcy.

The members of Congress also said the REIT structure could be used by to sidestep antitrust review.

The letter was signed by 14 Democrats and one Republican, U.S. Rep. Frank LoBiondo, who represents Atlantic City, where Caesars owns the Bally’s and Caesars casinos. An affiliate of Caesars also owns a Harrah’s casino in Atlantic City.

Apollo and TPG created Caesars from the $31 billion leveraged buyout of Harrah’s Entertainment in 2008.