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Caesars restructuring plan in limbo

A mediator in the Las Vegas gaming behemoth’s Chapter 11 case filed a statement saying he thinks an agreed-upon reorganisation was out of the picture.

Caesars Entertainment Operating Co. (CEOC) will need to wait a little longer before sending its bankruptcy-exit proposal to creditors just after the case’s mediator expressed deep pessimism over the possibility of a consensual reorganisation.

The Las Vegas gaming behemoth filed a Chapter 11 petition in January 2015 after a 2008 $30.7 billion leveraged buyout involving TPG and Apollo Global Management left the company with a staggering debt load. The casino giant failed to convince a federal bankruptcy judge in Chicago to give the preliminary OK of the debtor’s reorganisation plan outline, media outlets reported. 

Neither debtor counsel Paul Basta of Kirkland & Ellis nor a CEOC representative could be reached to confirm the status of the outline.

The development comes after mediator Joseph Farnan filed a statement on Monday with the bankruptcy court saying, in his belief, “there is currently no likelihood of material progress in the discussions” between non-bankrupt parent Caesars Entertainment Corp. (CEC) and a group of creditors holding a portion of $5.3 billion in secondlien notes. Funds making up the second-lien committee include Arrowgrass Capital, XAIA Investments, Pentwater Capital and CSS. 

CEOC in February filed a motion seeking appointment of a mediator to broker discussions between the second-lien noteholders and CEC. The debtor said the restructuring, which includes the creation of a real estate investment trust in which CEOC would transfer its business, was making progress but wanted assistance. In March, CEOC selected Farnan as the mediator. Talks had broken down by Monday (6 June).

Under the restructuring proposal, second-lien noteholders would receive $791 million in new CEOC convertible notes and 17.4 percent of the equity in a new CEC if those creditors support the plan. Should the group reject the plan, the noteholders would receive the same amount of convertible notes but only receive 9.4 percent of equity in a reorganised CEC.

Among other issues the second-lien noteholders take issue with is a proposed merger of the CEC and a publicly-traded affiliate. In an objection filed last Tuesday (31 May), the creditors called the plan outline a “partisan advocacy piece that flaunts the court’s prior rulings and obscures the undeserved windfall afforded to [CEC] and other insiders under the plan.” 

Currently, TPG founding partner David Bonderman and TPG North America buyout group leader Kelvin Davis, along withApollo partner David Sambur sit on the CEOC board.

Apollo and TPG representatives could not be reached for comment by press time.