Taxable Talk

Caesars Entertainment Operating Company (CEOC) today announced that they reached a restructuring agreement with its major creditors. The deal will likely allow CEOC to emerge from bankruptcy early in 2017. The settlement must be finalized and will require approval of the bankruptcy court.

“It’s important to recognize that a lot of work needs to be done in the next few weeks. Will there be bumps along the road? Yes. Is this a durable deal? Yes,” said Bruce Bennett, a lawyer for Jones Day representing junior creditors.

The deal will have CEOC merge with Caesars Acquisition Company, with first tier lenders getting about 115 cents per dollar, first lien holders getting 109 cents, and junior debt holders getting between 66 cents to 83 cents on the dollar.

But not everyone is settling. Trilogy Capital Management has $22 million of CEOC’s unsecured bonds and will pursue its lawsuit against the casino giant. The next hearing in Trilogy’s lawsuit against CEOC is scheduled for October 6th in New York. Trilogy is asking for $160 million in the lawsuit. The lawsuit, if it goes to trial, would likely confirm or deny whether Caesars truly split into a “good” Caesars and a “bad” Caesars (as Trinity and others claimed).

Tune in next week to see what happens with Trinity’s lawsuit and whether any other obstacles appear for the closure of the bankruptcy of CEOC.

There have been more developments in the Caesars bankruptcy. First, Caesars Entertainment said it is offering an additional $1.6 billion for junior creditors of Caesars Entertainment Operating Company (CEOC) in the contentious bankruptcy. The stock market reacted favorably to the news Caesars stock went up 21% today.

The underlying issue in the bankruptcy is whether Caesars management deliberately created a “bad” Caesars (CEOC) and a “good” Caesars (everything else). Junior creditors are accusing Caesars of exactly that. Lawsuits on this issue are on hold but unless a court extends an injunction they’ll start moving forward in October.

Earlier this month Judge Benjamin Goldgar ruled that junior creditors are within their rights to have top management at Caesars complete financial disclosure statements. As Bloomberg reported,

Apollo co-founder Marc Rowan, company principal David Sambur and TPG co-founder David Bonderman must provide the information to a committee of dissident creditors who are fighting a reorganization proposal for Caesars, U.S. Bankruptcy Judge A. Benjamin Goldgar ruled. That plan would release the men from any legal liability related to the Las Vegas-based gambling company’s bankruptcy. The bondholders say the men shouldn’t be shielded from lawsuits related to the bankruptcy.

But is $1.6 Billion more enough? Given that an independent examiner said Caesars could be liable for over $5 billion in damages, I suspect junior creditors may be thinking “no.” Caesars management is threatening to put all of Caesars in bankruptcy, with the obvious implication that you might get a lot less if the bankruptcy expands. Perhaps the junior creditors are thinking that this is a sign of desperation; that they’ll get 100% of their debt back by either lawsuits or a full bankruptcy; or that Caesars will increase their offer yet again in the future.

When the bankruptcy began I asked and answered some questions:

How long will the bankruptcy process take? A long time…

Who will profit from the bankruptcy? That’s a question with a sure answer: the lawyers…

Why aren’t all of Caesars’ hotels included in the bankruptcy? If you look at the list, some of the hotels are merely operated by Caesars and won’t be included in the bankruptcy even if the second-tier debtholders win. However, it is definitely possible that the bankruptcy could expand and take in more of Caesars than just CEOC…

Could some of Caesars’ properties be sold? Definitely. If this does not end up being a prepackaged bankruptcy, then each tier of debtors will propose a plan. One plan could be to auction various properties, so it’s definitely possible.

Nothing has caused me to change my opinions on any of these answers. The soap opera, er, bankruptcy began in January 2015; if you placed a bet on it reaching two years without resolution, your bet looks like a winner to me.

So stay tuned soon for the next exciting episode of “As the Caesars Turns.”

Caesars Entertainment Operating Company (CEOC) appealed Judge Goldgar’s decision to US District Court (decisions in a bankruptcy court get appealed to the District Court). Judge Robert Gettleman gave Caesars until October 5th; Judge Gettleman will hold a hearing in Chicago then. As reported in the Las Vegas Review-Journal, Judge Gettleman “…warned CEOC that it faced an ‘uphill’ fight.”

The pause does give time for the two sides to negotiate. That said, the junior creditors who filed $11 billion in claims against Caesars appear unwilling to settle for what Caesars has offered. The claims relate to allegations that Caesars deliberately reorganized to create a “good” Caesars and a “bad” Caesars. A court appointed examiner has already said that the junior creditors are likely to prevail.

On Friday, Bankruptcy Judge Benjamin Goldgar ruled that an injunction against $11 billion in lawsuits over how Caesars split itself into various units will be allowed to expire on Monday, August 29th. Given that the first of several court rulings in the various lawsuits is due on Tuesday, August 30th there’s a definite possibility that the rest of Caesars will join Caesars Entertainment Operating Company (CEOC) in Chapter 11 bankruptcy.

The dispute is over whether Ceasars (and its private equity owners, Apollo Global Management and TPG Capital) created a “good” (or healthy) Caesars and a “bad” (or unhealthy) Caesars (CEOC being the unhealthy Caesars). CEOC offered $4 billion extra in its reorganization plan if the junior creditors (they’re the ones who were protesting and suing over this dispute) would agree to the offer. While one junior creditor accepted the offer, most did not. Judge Goldgar wondered why the private equity owners weren’t contributing any of their own money to resolve the dispute. My cynical belief is that Apollo and TPG wanted to have their cake and eat it, too.

While CEOC plans on appealing the ruling, that’s a long shot. Given that a bankruptcy court examiner felt that the lawsuits could succeed (with damages as high as $5.1 billion), one possible means out for Caesars is to put the rest of Caesars into Chapter 11.

This coming week will be very critical for the future of Caesars.

Since I last reported on the bankruptcy of Caesars Entertainment Operating Company (CEOC) there has been some news:

1. The junior creditors appear to be no closer to agreeing with the senior creditors on a restructuring of CEOC. The latest obvious strife was when Judge Benjamin Goldgar threatened sanctions against the junior creditors for objecting to CEOC employing the law firm of Kirkland & Ellis as bankruptcy counsel. Jones Day, the counsel for the junior creditors, then withdrew their objections.

2. A Chinese consortium is apparently bidding for the Caesars Interactive Entertainment Inc, a unit of Caesars Acquisition Company (CAC). CAC is not in bankruptcy (at least for now). Given the current acrimony in the bankruptcy it is almost a certainty that the junior creditors will object to this sale (unless the proceeds are funneled to them, and there’s no chance that the current owners of Caesars want that to happen) so this deal is very unlikely to move forward until the bankruptcy is settled. Reports are that the World Series of Poker is not part of the proposed sale.

I still believe that the most likely outcome is for all of Caesars to be forced into bankruptcy, and this is more likely to happen sooner rather than later.

It’s been just over a year since Caesars Entertainment Operating Company (CEOC) declared bankruptcy. If Caesars Management was hoping that the court-appointed examiner would be giving them good news, and that the company would be coming out of bankruptcy unscathed, well, the news of the day is anything but.

Yesterday’s Wall Street Journal noted that a reorganization is not a given. Judge Benjamin Goldgar noted,

It doesn’t have to end with a confirmed plan…A trustee could be appointed, the case could be dismissed or, my favorite, the case could be converted to chapter 7 [liquidation], which would just be a hoot, wouldn’t it?

It’s likely the temperature in Caesars’ boardroom dropped ten degrees when they heard about that. As to why the judge made the remark, it turns out that Caesars doesn’t want the examiner’s report made public. Now why is that, as examiner’s reports (in a bankruptcy) are normally made public? Could it be that there’s damaging information in the report?

If we are to believe a report in the New York Post that’s exactly why. “Court-appointed probe will slam Caesars for fraud,” screams the headline. The first two paragraphs tell the story:

Caesars Entertainment’s court-appointed examiner has told company officials and creditors’ lawyers he believes the company acted improperly when it transferred assets away from the hobbled casino prior to putting it into Chapter 11, The Post has learned.

A report by the examiner, expected to be released next month, is likely to conclude there was a degree of civil fraud connected to the transfer, three sources with direct knowledge of the talks said.

Ouch.

As to what this means, quite a bit, and none of it is good for Caesars’ plan to get out of bankruptcy:

• The transfers made just before the bankruptcy (allegedly moving Caesars’ best assets out of CEOC prior to the bankruptcy) could be undone, dragging more of Caesars into bankruptcy;
• There could be personal liability for members of the Board of Directors of Caesars; and
• Asset sales and a very different exit for Caesars from bankruptcy would become far more likely.

For my poker-playing readers, it’s still unlikely that this will have a direct impact on this year’s World Series of Poker. It’s in everyone’s interest that the WSOP operate as planned because it’s profitable. That said, I would not be surprised to find assets such as the WSOP owned by someone besides Caesars by the end of the year.