Caesars nears finish line in bankruptcy

Bondholders’ acceptance of deal is crucial obstacle

Caesars Entertainment Corp. is the closest it’s been to ending two years of rancorous court battles with bondholders over who should pay to fix the casino giant’s insolvent operating unit, which can’t afford to pay almost $20 billion in debt.

The company is giving creditors until midnight in New York to accept a sweetened offer of more than $5 billion in cash, new debt and stock in a reorganized company. A group of bondholders that has been the biggest obstacle to the company’s plan has agreed on the framework of a deal, people familiar with the talks said Thursday.

Now the question will be whether the company’s more senior lenders — who were on board with previous iterations of the plan — will be willing to give up some gains they won at the negotiating table in order

to get the plan approved. Those creditors, who hold Caesars’ bank loans and first-lien bonds, would need to give up “hundreds of millions of dollars” in recoveries, according to the offer Caesars disclosed Wednesday. At least some senior lenders were hesitating Thursday, said the people, who asked not to be identified because the discussions are private.

A deal would put the unit, Caesars Entertainment Operating Co., on track to exit one of the biggest bankruptcies of the past decade. Creditors including David Tepper’s Appaloosa Management have been battling the private-equity titans that acquired the company in a 2008 leveraged buyout, Apollo Global Management and TPG Capital.

By signing onto the latest offer, the dissident bondholders are bringing the bankruptcy “very close to the finish line,” said Julia Winters, a Bloomberg Intelligence analyst in New York and former bankruptcy litigator.

Reuters reported that David Seligman, a lawyer for CEOC, said in court this week that the offer was a “best and final proposal.” While a settlement looked close Friday, three sources with knowledge of the matter told the wire service it might not close until early next week. They spoke on condition of anonymity because the talks are confidential.

Representatives of Apollo, TPG and Caesars didn’t respond to requests for comment.

In exchange for the sweetened offer, bondholders including Appaloosa would be required to drop any legal claims accusing Apollo and TPG and their top executives of plundering the operating company of valuable assets before putting it into bankruptcy. The bondholders, who own the company’s lower-ranking, second-lien notes, also say the parent company reneged on a promise to help pay the debt.

Caesars, Apollo and TPG all have denied the allegations and say their actions were a legitimate attempt to restructure the unit. Caesars has also said the bond terms allowed the company to drop the payment guarantee.

Under the proposal creditors are now weighing, Caesars would boost its contribution of stock, debt and cash by about $1.2 billion to more than $5 billion. This would satisfy second-lien bondholders, who would see their total recoveries go up by $1.6 billion, but only if the higher-ranking creditors agree to reduce theirs.

The operating unit would be organized into two new companies. One would run the casinos and pay rent to the other company, a real estate investment trust, which would own the land and buildings.

The Las Vegas-based parent company would also reorganize, combining with its publicly traded affiliate, Caesars Acquisition Co. Creditors of the bankrupt operating unit would own 62 percent of the new company, according to a Caesars statement on Wednesday.

Caesars employs more than 70,000 people.

Until this week, investors who hold more than half of the operating unit’s $5.5 billion in second-lien notes had been the biggest threat to Caesars’ reorganization plans.

One sticking point for the lower-ranking creditors throughout the bankruptcy has been the equity value Apollo and TPG managed to hang onto in the deal. In the new offer, the firms would see their stakes reduced, but not eliminated. Most equity holders of bankrupt companies typically recover little, if anything at all.

Bloomberg Intelligence’s Winters said the private-equity owners were likely spurred to compromise amid pressure by Caesars’ bankruptcy judge, Benjamin Goldgar, who accused the firms last month of trying to get a “free ride” in bankruptcy while lawsuits against them would be quashed.

The bondholders “probably have Goldgar to thank,” Winters said. “It really compelled Apollo and TPG to fork over” their equity.