LAS VEGAS (CN) – Caesars Entertainment Operating Company’s claims its Chapter 11 bankruptcy filing Thursday will “strengthen” it by reducing long-term debt and annual interest payments, but several creditors challenge the effort.
The restructuring plan is supported by more than 80 percent of first-lien creditors and would provide “significant recoveries for creditors” while ensuring all operations continue without interruption, Caesar’s Chairman Gary Loveman said in a statement Thursday.
Loveman said the restructuring would reduce about $18.4 billion in debt to $8.6 billion in new debt and reduce annual interest on debt from $1.7 billion to $450 million.
Listed as the top creditor in the Chapter 11 filing in Chicago is the Law Debenture Trust Company of New York, which is owed $530 million. The remaining top five creditors are Clark County, Nev., which is owed $46.9 million; Iowa Gaming Commission, $42.63 million; IGT, $28.55 million; and Hilton Hotels, $25 million.
The bankruptcy plan is opposed by hedge funds and junior noteholders, who filed an involuntary bankruptcy petition against Caesar’s on Monday in Delaware.
Caesar’s Entertainment Operating Co. (CEOC) is trying to restructure itself as a real estate investment trust.
The restructuring plan would separate U.S.-based gaming assets and real property into an operating company and a property company. A publicly traded real estate investment trust would own the property company, Loveman said.
In his 5-page letter, Loveman says a previously announced merger of Caesars Entertainment and Caesars Acquisition companies would enable the newly formed entity to make “substantial cash and other contributions to support the restructuring” without needing “significant outside financing.”
But to make that happen, Loveman says, creditors will need to release all pending and potential litigation claims against Caesars Entertainment and Caesars Acquisition, and Caesar’s need approval from the bankruptcy court and gaming regulators.
Several creditors already have filed court challenges to the proposed Chapter 11 filing, including UMB Bank, which in November 2014 accused Caesars Entertainment Corp. of “ unimaginably brazen corporate looting ” to strip CEOC of billions of dollars in assets and avoid repaying business loans.
In its lawsuit in Delaware Chancery Court, UMB Bank accused Caesars Entertainment of stripping more than $7 billion in assets from CEOC “without any legitimate commercial justification, for far less than reasonably equivalent value, and for the principal purpose of attempting to put those assets beyond the reach of CEOC’s creditors, they simultaneously looted nearly 60 cents or more of every dollar in value they took.”
The bank sued six Caesars entities and 16 officers, directors and/or people involved in the deals.
“Through this epic and fraudulent scheme of asset-stripping, and the purported release – effected through a sham equity investment – of the guarantee of CEOC’s debts by its parent, Caesars Entertainment Corporation, defendants have thoroughly ransacked CEOC in a sweeping and now transparent plan to take CEOC’s prime assets for themselves and leave its liabilities and creditors behind,” the bank said in the lawsuit.
It claims Caesars Entertainment Corp. “effectuated a series of shameless giveaways and other transactions that have robbed CEOC of more than $4 billion in value and counting, leaving CEOC’s longstanding creditors with no hope of being repaid.”
On page 3 of the 207-page lawsuit, the bank claims the defendants “assiduously worked to transfer assets conservatively worth over $7 billion away from CEOC, without any legitimate commercial justification” to avoid paying 8.5 percent secured senior notes issued to Delaware-based CEOC in 2012 and due in 2020.
UMB Bank claimed Caesars Entertainment stripped CEOC of at least $3.6 billion in assets, including:
Eight lucrative properties, including six casinos on the Las Vegas strip and one each in New Orleans and Baltimore;
Half of CEOC’s “management fee stream” for the gaming properties;
Valuable intellectual property, such as the “Total Rewards” program designed to boost casino business among repeat customers; and
CEOC’s rapidly growing online gaming business, Caesars Interactive Entertainment.
The bank said CEOC’s financial problems began when it took on $25 billion in debt to buy Harrah’s Entertainment in 2008, with the debt amounting to more than 80 percent of the purchase price.
Caesars Entertainment representative Gary Thompson did not return a call seeking comment.
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