Casino Gambling

Caesars reaches deal with major creditors, could end court fights

Harrah's Gulf Coast in Biloxi. Caesar’s Entertainment is the parent company.
Harrah's Gulf Coast in Biloxi. Caesar’s Entertainment is the parent company. jcfitzhugh@sunherald.com

Caesars Entertainment Corp. and representatives of its largest creditor groups struck a deal to fund a reorganization of the casino giant's bankrupt operating unit, a major step toward ending two years of rancorous court battles that embroiled the company and its controlling shareholders, Apollo Global Management LLC and TPG Capital.

The agreement announced Tuesday slashes the stake of Apollo and TPG in the reorganized company while insulating the private equity firms and their top executives from bondholder-backed lawsuits seeking to hold them responsible for the bankruptcy of Caesars Entertainment Operating Co. The accord, which requires a judge's approval, would end those court fights and reorganize Caesars's non-bankrupt parent company and the operating unit.

Caesars is the parent company for Harrah’s Gulf Coast in Biloxi.

The deal must be incorporated into the reorganization plan for the operating company, which is scheduled to go before U.S. Bankruptcy Judge A. Benjamin Goldgar in Chicago in January. Should he approve the reorganization, the Las Vegas-based casino giant would emerge with lower debt and new owners.

Second-lien bondholders, owed about $5.5 billion, appeared to be the biggest winners in the agreement. Those investors, led by David Tepper's Appaloosa Management, will see a recovery rate of about 66 cents on the dollar, or about 27 cents more than under a previous plan, according to the statement.

That group had been the toughest opponent of Caesars throughout the bankruptcy — which began in January 2015 — fighting to force the company to contribute more to the reorganization if it wanted to end the lawsuits.

Recovery rates for first-lien bank lenders and subsidiary guaranteed noteholders decrease by about 1 cent under the new plan, while rates for first-lien noteholders remain the same. Creditors will get about 70 percent of the fully diluted equity in the new Caesars' structure, according to the statement.

Until last week, the second-lien bondholders had maintained a holdout. A proposal unveiled Sept. 21 offered to increase their payout by about $1.6 billion. Approximately $1.2 billion of that would come from the non-bankrupt Caesars parent in the form of cash and stock, while more-senior creditors, including lenders and first-lien bondholders, were called upon to give up some of the more than $11.7 billion they were set to recover.

The groups negotiated throughout the weekend before filing arriving at terms all sides could agree upon.

Caesars had originally offered about $4 billion toward the reorganization, but the second-lien bondholders held out for more, saying the company had improperly shifted valuable assets out of the operating unit before putting it into bankruptcy. As leverage, they were pursuing lawsuits in New York and Delaware that accused the parent of violating bond agreements and abandoning promises to back the operating unit's obligations.

Caesars has said it did nothing improper and that its actions were honest attempts to reorganize the heavily indebted unit.

Apollo and TPG, which led a $30 billion leveraged buyout of the casino company in 2008, were also targeted by the second-lien bondholders, who demanded that the private equity firms contribute to creditor recoveries. Under the proposal spelled out Sept. 21, the firms would still retain equity in the reorganized Caesars, but not as much as had originally been planned.

Peter Blumberg contributed to this report.

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