Major gambling operator Caesars Entertainment Corp. may eventually be required to honor debt guarantees of $11 billion, after a US Bankruptcy Judge refused the company a third court shield from pending lawsuits related to its main operating unit’s Chapter 11 bankruptcy case.
Caesars Entertainment Operating Co (CEOC) petitioned to have its parent company shielded in an attempt to save a $4-billion contribution promised to be granted by Caesars for its subsidiary’s reorganization plan. CEOC filed for Chapter 11 bankruptcy protection on January 15, 2015. The gambling company thus launched into a more-than-a-year long saga that will continue at least until January 2017 when a hearing on its latest reorganization plan is scheduled to take place.
The main operating unit’s unfortunate situation came as a result from multiple lawsuits filed by creditors who claimed that parent company Caesars together with private-equity backers Apollo Global Management LLC and TPG Capital Management LP had stripped CEOC of a number of key casino assets in a manner that hurt the company itself as well as its bondholders.
Both Caesars and its owners did not admit to any wrongdoing alleged but a specially appointed independent examiner confirmed earlier this year that the property sale might eventually cost the gambling operator up to $5.1 billion in legal claims. In order to be released from the allegations, the company proposed to partly finance CEOC’s restructuring by paying the amount of $4 billion.
U.S. Bankruptcy Judge Benjamin Goldgar ruled on Friday that Caesars would not be shielded for a third time as he did not think another injunction would help involved parties settle the matter. The current injunction expires tomorrow, August 29. Just a day later, a federal judge will be able to rule in New York whether the gambling operator will have to honor debt guarantees of $7.7 billion.
An independent but rather similar lawsuit will be considered in a Delaware court next month. Depending on what is ruled, Caesars may be required to honor the amount of $3.7 billion in debt guarantees again.
Both the gambling operator and its operation unit said on Friday that they were disappointed by Judge Goldgar’s ruling as it puts the parent company’s ability to contribute to CEOC’s restructuring at serious risk. CEOC lawyers also revealed that they would appeal the decision.
Under its reorganization plan, Caesars’ main unit proposes legal settlement to bondholders’ claims, the removal of $10 billion off its debt, and the separation of the company into two entities. As mentioned above, the proposal will be heard before court early in 2017.
