Caesars Entertainment Offers an Additional $1.6 Billion to Creditors in the CEOC Lawsuit
Caesars Entertainment has offered an additional $1.6 billion to its junior creditors in order to get the CEOC bankruptcy lawsuit out of the way. The new figure pushes the compensation for the litigants from nearly $4 billion to over $5.5 billion.
The offer has one major stipulation: the creditors have until Friday to accept, or else the offer comes off the table. The two sides have been locked in a bitter lawsuit since January 2015, when the junior creditors filed suit days after Caesars’ CEOC reorganization plan was filed.
“Best and Final Offer”
This latest offer is considered a serious attempt to end the dispute. When an independent examiner gave his estimate of what Caesars might be liable to pay earlier this year, he estimated a $5.1 billion price tag. This seems to exceed the amount a disinterested third party expert believes is a owed to the junior creditors, or at least what they might reasonably be expected to win in a long court case.
The offer was presented to the junior credits of Caesars Entertainment Operating Co. (CEOC) on Wednesday. CEOC filed for bankruptcy in January 2015, citing the $18.5 billion in debt the division of Caesars Entertainment held. In all, Caesars owed around $23 billion at the time.
CEOC Bankruptcy Reorganization
The junior creditors (who owned about 20% of the debt) filed suit, because the Caesars parent company had moved 12 casinos from the CEOC division to other parts of the company in the months leading up to the bankruptcy filing. Those creditors’ lawyers argue that those casinos which were reasonably assumed to be assets of the CEOC division, meaning Caesars executives enticed them into investing by showing collateral they never intended to pay, if the investments went bad.
The first lienholders (who owned about 89% of the debt) agreed to the CEOC reorganization, because Caesars’ owners — Apollo Holdings and TPG Holdings — convinced them to agree to a stake in a new division, which would invest in new properties and other real estate holdings.
Complicated Legal Battle
Over the months, the lawsuit has become increasingly complicated. Caesars executives complained about the level of intrusiveness in their own financial dealings. One judge, US Bankruptcy Judge William Goldgar, ruled in August that the plaintiffs might be able to go after Caesars Entertainment’s assets, which Caesars has said before might force the parent company to declare bankruptcy.
Another judge who was appointed to oversee mediation in the case, Retired Judge Joseph Farnan Jr., resigned earlier this month, citing disagreement with the Judge Goldgar on whether mediation had a chance to succeed.
Judge Goldgar Tightens the Screw
Judge Goldgar has executive oversight of the negotiations and final say in the bankruptcy case. Caesars were vocal critics of his August decision, which they say put the company in advanced financial jeopardy. Thus, the decision to offer an additional $1.6 billion in finances is directly related to the resignation of Judge Farnan, who presumably had a more accommodating stance.
David Seligman, a lawyer for CEOC, stated this would be the “best and final” offer made by the company. That may well be true, whether the creditors find that they can accept the offer or not. Otherwise, the two sides are likely to fight the legal battle to its logical conclusion.
Friday Update
In a Friday update, Caesars stocks have soared as word has leaked out of a possible preliminary deal between the two sides. Nothing is concrete at the moment, but the word on Wall Street suggests that Caesars Entertainment’s latest offer might have done the trick. Until a final agreement is announced, these tense negotiations could fall apart.
If the bankruptcy settlement does happen, Judge Goldgar’s August decision to put the Caesars’ parent company’s assets in possible jeopardy might be seen as the turning point, as it forced Caesars to up its offer. Others might point to the resignation of Judge Farnan as the key moment, because it told Caesars that the only one moderating Goldgar’s rulings — and the junior creditors’ demands — had left the case.
