Caesars deal bolsters junior creditors

The Las Vegas-based gaming company is on track to exit Chapter 11 after reaching a consensual restructuring agreement.

Bankrupt US casino group Caesars Entertainment Operating Company (CEOC) has secured a way out of court protection after reaching an agreement with creditors that boosts the position of second lien noteholders.

The deal paves the way for a consensual reorganisation plan by bringing CEOC junior creditors into the fold through an increase of cash, equity and debt at the expense of those holding first lien debt and first lien notes in the bankrupt gaming behemoth.

Second lien noteholders would see their recoveries more than double, resulting in an increase from 27 percent to 66 percent of their claim amount. The boost comes from an additional $345 million of cash, a 14.6% increase in the fully diluted equity in the reorganised Caesars, which would merge two existing affiliates, and a $108 million increase in convertible notes in in the restructured business.

Under the old plan, the second lien noteholders were set to receive $791 million in convertible notes, equal to 9.6 percent of the common stock in the restructured Caesars, and 8.9 percent of the new equity if the group voted against the plan.

“Confirmation of the plan would facilitate a successful conclusion to Caesars Entertainment Operating Company (CEOC's) bankruptcy proceedings in 2017 and enable Caesars Entertainment and CEOC to move forward with a substantially improved capital structure,” Caesars said in a statement.

The company or its bankruptcy counsel did not respond for further request for comment.

The enhanced second lien recovery docked those of first lien noteholders and first lien bank lenders, which includes FS Investment Corporation (FSIC), the Franklin Square-owned BDC sub-advised by GSO Capital. An FSIC spokesman could not be reached for comment.

The holders of the bank debt and holders of first lien notes would receive, respectively, $66 million and $79 million less in cash. Holders of bank debt saw a slight decrease in their overall recovery from 116 cents on the dollar to 115 cents on the dollar. The noteholders’ recovery remained constant at about 109 cents on the dollar.

As part of the deal, junior creditors, who recently sought information about Apollo Global Management and TPG Capital executives’ personal financial positions, would own a larger equity holding the reorganised business. The private equity firms would also hand over their entire $950 million stake in the listed parent company, Caesars Entertainment Corporation (CEC), the statement said. Apollo and TPG would own a small stake, 6 percent, of the group to be called reorganised entity.

Spokesmen for TPG and Apollo declined to comment beyond CEOC’s announcement.

“The revised plan of reorganisation will release all pending and potential litigation claims and causes of action against Caesars Entertainment, Caesars Acquisition Company, and related third parties to the fullest extent permitted,” the statement said.

CEOC filed for bankruptcy in January 2015 amid creditor accusations that parent CEC and private equity sponsors Apollo and TPG had stripped the operating arm of its best assets, as previously reported by pfm.

In August, the judge suggested that the firms should chip in to help restructure CEOC in its Chapter 11 case. The company’s current reorganization plan includes a $4 billion payment from CEC but not from TPG or Apollo. 

–Nicole Miskelly contributed to this report.