Trustee for Caesars senior lenders sues for $6 billion

Las Vegas-based Caesars Entertainment Corp. was sued for more than $6 billion by a representative for noteholders who are the lone creditors backing its controversial plan to overhaul $18 billion in debt.

The lawsuit, filed in Manhattan federal court on Monday, seeks damages equal to the outstanding principal and interest on at least $6.3 billion in first-lien notes issued by Caesars’ operating unit, which filed for bankruptcy in January.

The lawsuit was brought by UMB Bank, which is the indenture trustee for several issuances of first-lien notes, and not by the actual noteholders, which include the Elliott Management investment fund.

UMB said Caesars breached terms of the notes and the Trust Indenture Act by voiding a guarantee of its operating unit’s obligations.

Caesars is already defending several lawsuits accusing it of improperly benefiting from the transfer of the best casinos out of the operating unit over the past several years, leaving the unit unable to pay its debts.

In a statement, Caesars Entertainment said the claims by UMB were without merit.

“Caesars has, however, confirmed at the request of certain of the first lien creditors who are party to the Restructuring Support Agreement that the filing of the UMB Bank lawsuit does not violate the (agreement), which remains in force,” the company stated.

The lawsuits have said Caesars’ private equity backers, Apollo Global Management and TPG Capital Management, also benefited from those asset transfers. A court-ordered examiner is investigating the transactions, which Caesars has said were carried out for fair value.

Elliott and several other funds holding the notes have agreed to support a restructuring plan that centers on breaking the Caesars’ bankrupt operating unit into a property company, which investors tend to value more highly, and a casino operator. Caesars has committed to contribute $1.5 billion to support the unit’s plan.

The operating unit, Caesars Entertainment Operating Co. Inc., has asked the U.S. bankruptcy judge overseeing its case to put a hold on creditors’ litigation against the parent company to allow the various claims to be resolved through negotiation.

Without this stay, the operating unit warned in a May court filing the first-lien noteholders “undoubtedly will join” the flurry of lawsuits filed outside the bankruptcy to make sure their claims get heard along with those of junior creditors.

U.S. Bankruptcy Judge Benjamin Goldgar in Chicago said he would rule on the request to stay the litigation against the non-bankrupt parent on July 22.

Shares of Caesars closed at $6.60 on the Nasdaq Tuesday, down 27 cents or 3.93 percent.

Elliott Management and lawyers for UMB Bank did not respond to requests for comment.