Caesars Entertainment Corp. is pressing in and out of court to
avoid following its largest unit into bankruptcy.
The Las Vegas-based casino operator expects a judge on Wednesday
to rule on its request to halt lawsuits that threaten to push it
into bankruptcy. Meanwhile, Caesars late Monday said it is offering
creditors hundreds of millions of dollars' worth of securities to
withdraw their litigation and back its restructuring plan.
The dual push marks the latest effort by Caesars's biggest
owners, buyout firms Apollo Global Management LLC and TPG, to
salvage their investment in the casino company. It is also high
stakes for a host of distressed debt investors, including
Blackstone Group LP, Elliott Management Corp. and Appaloosa
Management LP, that have at various points snapped up debt of the
now-bankrupt unit.
Caesars's put its largest unit in chapter 11 protection in
January, after more than 45 deals meant to keep the Caesars empire
afloat when it struggled amid an industry downturn and debt-fueled
buyout led by Apollo and TPG in 2008.
By putting just the unit into bankruptcy, rather than the whole
company, Caesars preserved investments of Apollo, TPG and other
shareholders. But creditors claim Apollo and Caesars didn't deal
fairly ahead of the filing. They have sued over moves, before the
filing, to transfer assets to affiliates and out of creditors'
reach, and to strip some creditors of certain protections.
The creditor litigation, which Apollo and Caesars say lacks
merit, could drag the parent company into bankruptcy and give
bondholders a bigger prize to fight over.
Caesars is asking a bankruptcy court for protection from the
suits while trying to convince creditors to stop pursuing them.
In seeking court protection, Caesars essentially is trying to
gain some protections of bankruptcy while keeping its assets away
from creditors' claws in court.
"They're trying to get some of the benefits [of bankruptcy]
without some of the costs," said Anthony Casey, an assistant
professor at the University of Chicago Law School.
The Caesars unit's lawyers have argued the parent deserves such
a stay against outside legal attacks—something afforded to debtors
under the bankruptcy code—because of its integral role in backing
the unit's restructuring.
A U.S. Bankruptcy Court judge in Chicago is expected to rule
Wednesday whether Caesars is shielded from the litigation.
For the judge, "it's a question of when a bankruptcy court has
power to stop nonbankruptcy litigation—to step in and interfere
with what's going on in another court," Mr. Casey said.
Meanwhile, Caesars and Apollo, which has led much of the
restructuring, are hedging their bets. Late Monday, Caesars said it
offered as much as $400 million in parent company convertible bonds
and other securities to junior bondholders that agree to back the
unit's restructuring plan, subject to certain conditions.
Taking the deal requires that they instruct a trustee
representing their interests to drop litigation, according to a
regulatory filing Tuesday.
As of Tuesday morning, holders of more than 30% of the bankrupt
unit's bonds had signed on to the deal, a person familiar with the
matter said. A greater share would need to agree to persuade the
trustee to drop the litigation.
The signatories include hedge fund firms Soros Fund Management
and Canyon Partners LLC, the person said. They have a vested
interest in helping the Caesars parent because they're also among
its largest shareholders.
Still, the plan faces opposition from some corners. A committee
of the junior bondholders on Tuesday called Caesars's proposed plan
"coercive to its constituency and premised upon improper
payments."
Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com
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