Caesars Bankruptcy Plan May Violate the Law, Says Bankruptcy Watchdog

The US government’s bankruptcy watchdog, US Trustee, has expressed concerns over Caesars Entertainment Corp’s bankruptcy reorganization plan and the deal it has reached with most of its junior creditors.

The company’s main operating unit, Caesars Entertainment Operating Co. (CEOC), filed for bankruptcy in January 2015 in an attempt to reorganize some $18 billion of its industry-high debt.

It was promptly sued by its junior creditors who accused the parent company of deliberately stripping CEOC of its prized assets, such as the Linq and Planet Hollywood, for the benefit of its controlling shareholders, Apollo and TPG. These actions left CEOC with nothing but distressed assets and unpayable debts. They argued.

A court-appointed examiner concluded that CEOC was indeed picked clean of its prize properties. It claimed that, in 2012, Apollo and TPG began a strategy to weaken CEOC and strengthen their own hand in preparation for potential bankruptcy proceedings.

But last month Caesars was able to bring the vast majority of its creditors on board after sweetening the pot. The new deal included a $5 billion contribution by Caesars to CEOC’s reorganization plan in exchange for creditors releasing the company from allegations of asset stripping and from billions of dollars in legal claims.

But Denise DeLaurent, a lawyer for U.S Trustee warned in court that any deal must abide by the law. Her office was currently reviewing “fees and aspects of the deal that released some parties from lawsuits.”

“From our perspective even if everyone comes to an agreement, it might still violate the law,” she said.

The slightly better news for Caesars is that, now, just one single creditor is holding out against the new restructuring plan.

Under the plan, Trilogy Capital Management holds $9.4 million in unsecured notes and has been offered 66 cents on the dollar, in line with other creditors in this class.

But Trilogy wants 90 cents plus legal expenses. This week the hedge fund appealed against a bankruptcy court ruling preventing them from pursuing litigation against Caesars Entertainment.

“The bottom line is Goldman Sachs and the other Favored Noteholders will receive approximately 89 cents on the dollar for their notes … plus interest and attorneys’ fees, while Trilogy and other disenfranchised noteholders will receive 66 cents on the dollar for the very same investment,” reads Trilogy’s legal filing. “Trilogy simply wants its day in court to demonstrate that this transaction was improper.”