More Trouble for Caesars as Primary Creditors Get Twitchy

Caesars EntertainmentReuters is reporting that primary creditors of Caesars Entertainment Operating Co are threatening to abandon the company´s restructuring plan.

According to the Reuters article, several primary creditors have filed papers with the Chicago bankruptcy court of Judge A Benjamin Goldgar, claiming that they are no longer happy with the framework agreement they subscribed to when Caesars Entertainment Operating Co originally filed for Chapter 11 bankruptcy in January 2015.

The nervous creditors claim that there has been “a very substantial decline” in the value of the assets they were initially promised; and that, if there is no progress towards an acceptable resolution, they will tear up the original framework agreement and present one of their own.

What are the Primary Creditors so Upset About?

When Caesars Entertainment Operating Co originally filed for Chapter 11 bankruptcy, the plan was to restructure the company into a Real Estate Investment Trust (REIT) and an operating company that would manage the properties in the REIT.

The primary creditors would receive 93.8 cents on the dollar in cash and shares in the REIT, while secondary creditors would receive just pennies for their debt and be left with shares in an effectively worthless management company.

Naturally the secondary creditors kicked off and accused Caesar Entertainment Operating Co of asset stripping in the months leading up to the voluntary bankruptcy. In an attempt to make several lawsuits “go away”, Caesars made an improved offer to the secondary creditors at the expense of the primary creditors. That was in October.

If this Happened in October, Why Get Upset in February?

The timing of the primary creditors´ action is significant. Later this month a preliminary report into the accusations of asset stripping is due to be published. According to an [geolink href=””]article in the NY Post[/geolink], the report is going to find that Caesars Entertainment Operating Co “acted improperly” in the transfer of assets such as the Harrah´s Resort in Atlantic City and the company´s real estate in Macau, Seoul and Manila.

If the NY Post article is accurate, the implications are that the asset transfers could be reversed – dragging parent company Caesars Entertainment Corporation into the bankruptcy proceedings. If that were to happen, Caesars´ executives say, the parent company would also be forced into Chapter 11 bankruptcy.

That scenario does not appear to be avoidable to many. Caesar´s Entertainment Corporation has been in dire financial straits since a $30 billion highly-leveraged deal in 2008 went wrong due to the global recession. Ever since, the parent company has been buried under a mountain of unsustainable debt and the only way that creditors are likely to see any of their investment returned is if the entire company is liquidated or bought out. Liquidation being the most likely outcome.

Is This the End for Caesars Entertainment?

Probably not for the parent company. Caesars Entertainment Corporation has already got involved in its subsidiary´s bankruptcy case and said it is willing to restructure the framework agreement and has proposed mediation to address the issues of both the primary and secondary creditors.

Whether a new restructuring proposal and mediation will be enough to appease the company´s long-suffering creditors, nobody knows. But, politicians are also getting twitchy about the demise of the company, the potential loss of jobs and political contributions they have enjoyed for many years.

Back in December, Nevada Senator Harry Reid [geolink href=””]tried and failed[/geolink] to change the 1939 Trust Indenture Act as a blatant “thank you” to Caesars for all the money the company has donated to his electoral campaigns. Reid retires this year and there is little doubt that his successor will also want to see Caesars survive – provided that the political contributions continue to flow.

As usual, the only people guaranteed to make anything out of this mess are the lawyers!

Jacqueline Packett
Jacqueline Packett