On January 15, Caesars Entertainment Operating Company, Inc. (CEOC), a subsidiary of gambling operator Caesars Entertainment Corporation, filed for reorganization under Chapter 11 of the US Bankruptcy Code in Chicago.
More than 80% of the company’s first-lien noteholders had previously expressed their support for the restructuring plan, which was to be adopted, so as for Caesars Entertainment and its subsidiary, in particular, to be able to reduce their long-term debt as well as annual interest payments. The operator promised that its creditors would be provided with substantial recoveries. Furthermore, Caesars Entertainment pointed out that all its properties, those owned by CEOC included, would continue operating as usual.
The Chapter 11 filing was not a surprising move, as CEOC, which is Ceasers Entertainment’s largest operating unit, spent months in negotiations with creditors concerning the declining profitability of the company. The operator’s balance sheet was affected in quite a negative manner by the Apollo Global Management and TPG Capital leveraged buyout in 2008.
The deal left Caesars Entertainment with a $22-billion debt, of which a $18.4-billion one was held by its main unit. In order to slash its debt, the operator decided to split CEOC into a real-estate investment trust (REIT) and a subsidiary company that would manage the casino properties. This, however, needed an approval from a federal judge.
According to analysts, the fact that Caesars Entertainment could not consolidate its positions on major Asian markets, such as Macau and Singapore, was yet another reason for the company’s condition.
The first thing that needed to be settled was where the $18.4-billion bankruptcy case was to be heard. On January 12, certain lower-ranking noteholders submitted a petition against CEOC in a Bankruptcy Court in Wilmington, Delaware, as both the operator and its parent company are incorporated in the state. However, as mentioned above, Caesars Entertainment filed for Chapter 11 bankruptcy protection in Chicago.
Each involved party questioned its opponent’s motives, as the choice of venue where the case was to be heard was one of the important factors that would influence the final decision on the matter. According to Bankruptcy Attorney Howard Seife, the Illinois federal courts are less strict when it comes to deciding whether a given company, its owners, and affiliates should be released from bankruptcy liability.
On January 28, a Delaware federal judge decided that the bankruptcy case, which was expected to reduce CEOC’s debt by almost $10 billion, should be heard at an Illinois Bankruptcy Court.
On February 4, Caesars Entertainment announced that Gary Loveman, its Chief Executive Officer, would step down from his position as of July 1. He is to be replaced by Mark Frissora, a former Hertz Global Holdings Inc. CEO. Despite his resignation, Mr. Loveman will still be in charge of the restructuring plan and will remain Chairman of both Caesars Entertainment and CEOC.
Early in March, the casino operator formalized its plan to split its main unit into two separate ones – an operating entity, which would manage 38 gambling venues in 14 states and would be owned by Caesars’ first-lien noteholders in exchange for the amount of $6.3 billion they are owned, and a real-estate investment trust.
Towards the end of March, Judge Benjamin Goldgar, who is in charge of the casino operator’s bankruptcy case, ruled that Richard Davis, a former Watergate prosecutor, would investigate CEOC’s transactions before it filed for Chapter 11 protection back in January. A group of creditors claimed that Caesars Entertainment and its subsidiary had purposefully shifted assets away from them, so as to benefit owners.
Judge Goldgar also set a June 1 hearing on CEOC’s request for several lawsuits against its parent company to be suspended, as these might hamper the implementation of its restructuring plan.
Earlier this month, Caesar Entertainment’s main operating unit requested for its right to present a plan to slash its debt to be extended to November 15 from May 15. Creditors of the company, however, objected the extension on grounds that other plans could be proposed instead. A hearing on the matter was scheduled for Wednesday, April 29.
