(CN) – A bank accuses Caesars Entertainment Corp. in court of “unimaginably brazen corporate looting” to strip the company of billions of dollars in assets and duck business loans.
UMB Bank claims the operator of Caesars Palace and other casinos stripped defendant Caesars Entertainment Operating Co. (CEOC) of more than $7 billion “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, in Delaware Chancery Court on Tuesday.
“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 says.
It claims the defendants “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.”
One paragraph later – 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”.
They did it, the bank claims, to avoid paying 8.5 percent secured senior notes issued to Delaware-based CEOC in 2012 and due in 2020.
UMB Bank claims 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.
UMB Bank claims Caesars Entertainment “pirated over half a billion dollars of additional value” from CEOC by forcing it to pay down a $616 million “intercompany ‘credit arrangement;'” to pay more than 100 cents on the dollar for notes that CEOC issued to Caesars Growth Partners at a discounted rate less than a year ago; and “effecting the payment of hundreds of millions of dollars” in management fees to Caesars Entertainments private equity owners.
The bank claims Caesars Entertainment forced CEOC to close its profitable Showboat casino in Atlantic City to prevent it from competing with other Caesars Entertainment properties and made CEOC prepay unsecured notes three years before their maturity dates and with “substantial premiums to par.”
Officials for Caesars Entertainment “like to dress up their outright looting as ‘deleveraging’ CEOC’s balance sheet – but even a cursory review of [their] actions reveals that the forced sale of valuable assets from a hopelessly insolvent CEOC to its affiliates for a fraction of what they are worth destroys CEOC’s future,” the bank says in the lawsuit. “Far from offering CEOC a viable path forward, these machinations are a bridge to nowhere for both CEOC and its creditors.”
UMB Bank says 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.
“The sponsors invested only a modest sliver of their own equity” and “assumed the corresponding risk that the sliver of equity value they contributed could be readily destroyed in the event of a downturn,” UMB Bank says.
When that downturn came, the bank says, company officials created Caesars Entertainment while leaving the majority of debt with CEOC, then began stripping CEOC of its assets, which now amounts to five older towers at Caesars Palace which likely will be transferred.
The lengthy lawsuit is replete with colorful language.
For instance: “CEOC’s slavish obedience to the self-serving whims of its parent, CEC, and the sponsors is indefensible. Every day defendants maintain control over CEOC is another opportunity to strip out the last remaining value from CEOC’s decaying carcass while simultaneously running the clock on the preference and fraudulent transfer look-back periods in advance of CEOC’s inevitable collapse into bankruptcy.”
The bank sums it up by quoting casino consultant Alan Woinski: “They went private and then they were able to screw around with their debt long enough and did what we call ‘extend and pretend’ – they extended out the maturities and just put new debt on top of old debt, and the pretend part is pretending that someday they’d be able to pay it off.”
UMB Bank accuses the defendants of six counts of fraud, illegal dividends, unjust enrichment, breach of contract, interference with contractual relations, breach of fiduciary duty and aiding and abetting breach of fiduciary duty.
It seeks the appointment of a receiver for CEOC, rescission of the asset transfers, imposition of a constructive trust for CEOC and its assets, declaratory judgment that CEOC is insolvent, an injunction against further asset transfers, compensation to CEOC for its losses, disgorgement, attorney’s fees and costs.
Caesars Entertainment’s website lists several iconic Las Vegas casinos among its properties, including the Caesars Palace, Flamingo, Harrah’s, Planet Hollywood, Bally’s, Paris and Rio casinos in Las Vegas and other properties.
Listed as defendants in UMB Bank’s complaint are Caesars Entertainment, CEOC, Caesars Entertainment Resort Properties, Caesars Acquisition Company, Caesars Growth Partners and Caesars Enterprise Services.
Also listed as defendants are executives and current and former board of directors members Gary Loveman, Jeffrey Benjamin, David Bonderman, Donald Colvin, Kelvin Davis, Fred J. Kleisner, Eric Press, Marc Rowan, David Sambur, Lynn C. Swann, Christopher J. Williams, Jeffery Housenbold, Michael Cohen, Eric Hession, Ronen Stauber and Steven Winograd.
UMB Bank’s lead counsel is David Ross with Seitz Ross Aronstam & Moritz. of Willington.
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