CZR Caesars Entertainment Inc

CHICAGO—The federal judge weighing whether to grant Caesars Entertainment Corp. another reprieve in an $11 billion legal battle on Thursday raised the possibility that settlement talks might make more progress if litigation involving bondholders is allowed to proceed.

As lawyers wrapped up their arguments Thursday over a proposed litigation shield for Caesars, Judge A. Benjamin Goldgar of the U.S. Bankruptcy Court in Chicago asked if past settlement talks were "more productive" when such a shield wasn't in place.

The judge then wondered whether the temporary litigation shield he previously granted has had "exactly the opposite effect" by discouraging settlement talks.

Caesars, which isn't in bankruptcy, faces lawsuits demanding that it honor guarantees of more than $11 billion of its bankrupt operating unit's bond debt. Caesars says the guarantees are no longer valid.

Judge Goldgar, who is overseeing the operating unit's chapter 11 case, has previously enjoined, or halted, the litigation. That shield will expire Monday, however, unless he renews the injunction. If he doesn't, New York and Delaware courts could issue speedy rulings on the disputed guarantees in a matter of weeks.

A ruling is expected Friday afternoon.

Lawyers for the bankrupt Caesars Entertainment Operating Co., or CEOC, unit argue the success of its chapter 11 case, pending for more than 19 months, is on the line. They say the injunction is needed to protect an estimated $4 billion contribution by Caesars to the restructuring, part of a broad settlement that aims to resolve the bondholder litigation and other legal claims.

"Let us finish the job," CEOC lawyer David Zott said in court Thursday.

"That's what you asked me for last time," Judge Goldgar responded. "So the job wasn't finished? What's to make me think that it will be if I grant you what you want this time?"

Mr. Zott, of Kirkland & Ellis, cited testimony from an adviser to the bankrupt operating unit, who earlier this week said a settlement is "close."

Bondholders, however, say protecting Caesars has so far discouraged settlement talks and will continue to do so. They say allowing their litigation to proceed will level the playing field.

"There's nothing about another injunction that would be equitable or fair," said Jones Day lawyer Jim Johnston, who represents bondholder plaintiff Wilmington Savings Fund Society.

CEOC sought chapter 11 protection in January 2015 with some $18 billion in debt, the product of a 2008 leveraged buyout by private-equity firms Apollo Global Management and TPG, currently Caesars' majority owners.

The major hurdle in CEOC's chapter 11 case has been securing unanimous creditor support for a broad deal to settle legal claims against Caesars and the private-equity firms.

A court-appointed investigator found that a series of prebankruptcy transactions orchestrated by Caesars and its backers moved valuable assets away from CEOC, hurting the now-bankrupt company and its creditors.

Caesars and its backers staunchly defend the deals, which are also the subject of the bondholder litigation, and dispute liability.

Write to Jacqueline Palank at jacqueline.palank@wsj.com

(END) Dow Jones Newswires

August 26, 2016 01:35 ET (05:35 GMT)

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