Caesars Entertainment’s largest subsidiary could enter federal bankruptcy protection by mid-January, according to an agreement reportedly reached between the Las Vegas-based casino giant and its senior creditors.
Bloomberg says Caesars Entertainment Operating Co., the unit of New York-listed Caesars (Nasdaq: CZR) that owns or operates 44 of the parent company’s 50 US and international casinos—and carries most of its industry-leading US$23 billion of debt— will have a reorganization of its finances overseen by a federal judge under Chapter 11 of the US Bankruptcy Code.
The agreement with a group of lenders led by first-lien bondholders Elliott Management Corp. and Pacific Investment Management Co. will involve what is known as a prearranged or prepackaged Chapter 11 filing, according to sources cited by Bloomberg with knowledge of the talks, and will cover around $18 billion of debt.
“The push to restructure is certainly taking on more immediacy,” said KDP Investment Advisors analyst Barbara Cappaert, who estimates Caesars could “run out of cash” in another two to three quarters.
Caesars was taken private six years ago by Apollo Global Management and TPG Capital in a $30.7 billion leveraged buyout that was one of the largest in history. The company has struggled ever since to pay the debt down in a domestic operating environment that has been mostly flat ever since the recession.
The company hasn’t turned a profit in five years, and with debt service becoming increasingly problematic it returned to the public markets last year, relisted as CZR, and reorganized its assets under three subsidiaries—CEOC being one—shifting key properties, including several Las Vegas casinos and its interactive division, into different entities to shield them from creditors.
In the most recent quarter ended 30th September, the conglomerate as a whole posted a $908.1 million loss, 19% worse than the same period in 2013, despite a 6% increase in revenue to $2.12 billion, driven mainly by the online and remote businesses operating under the subsidiary known as Caesars Growth Partners, which is not affected by the restructuring talks involving CEOC.
The point of a pre-packaged Chapter 11 filing would be to protect senior debt holders’ claims from warring groups of subordinate creditors. Experts say a filing by mid-January would leave enough time to assure the former that their claims won’t be challenged in the bankruptcy proceedings. But it requires that a transfer of assets, including a pledge on cash, must be completed at least 90 days before a filing.
“They have to make first-lien creditors believe it’s going to be really safe when they file,” Ronald Mann, a professor at Columbia University Law School, told Bloomberg. “The creditors have a lot of control here. If they can’t get first-lien creditors to go along, they have a real problem.”
In the midst of the negotiations at least one major lender, reportedly a New York-based hedge fund, has walked away from the table, and last month, several second-lien bondholders filed notices of default against the company involving $3.7 billion of the debt.
They’re expected to be left out in the cold, however, as “The first-lien debt and note holders are in the best position to extract with the bank debt fully covered,” said Ms Cappaert.
