Caesars Entertainment’s operating unit files for bankruptcy

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The operating unit of Caesars Entertainment Corp, the largest U.S. casino company, filed for Chapter 11 bankruptcy yesterday to implement its plan to cut US$10 billion of debt.
The second Chapter 11 filing for the unit this week follows months of negotiation and litigation over how best to reduce the billions of dollars of debt assumed in a 2008 buyout that was arranged by Leon Black’s Apollo Global Management LLC and David Bonderman’s TPG Capital Management LLP.
That transaction occurred before the financial crisis and a glut of competition hobbled the U.S. gambling industry. Caesars has lost money every year since 2009 and has tried to remain solvent by refinancing debt and shuffling assets among its units.
Lower-ranking creditors of the Las Vegas-based casino operator say the restructuring accord Caesars worked out with a select noteholder group unfairly protects the company’s interests at their expense. Their January 12 bankruptcy petition seeks to keep the casino operator from closing that deal.
Caesars’ reorganization strategy protects Apollo and TPG by keeping the parent, Caesars Entertainment Corp., out of bankruptcy and instead puts in the operating unit and its affiliates.
Caesars listed about US$12.4 billion in assets and US$19.9 billion in liabilities in Chapter 11 documents filed yesterday in Chicago.
The company said it has the support of its senior noteholders to implement the plan, which will reduce the operating unit’s debt to US$8.6 billion from US$18.4 billion. The bankruptcy protection was filed by Caesars Entertainment Operating Company Inc and several affiliates in the U.S. Bankruptcy Court for the Northern District of Illinois.
They listed assets and liabilities of over US$1 billion, according to the filing. Much of the debt is a legacy of the US$30 billion leveraged buyout of Harrah’s Entertainment that was led by Apollo Global Management and TPG Capital in 2008.
Under the plan, the operating unit will be split into a casino company and a real estate investment trust. The company does not anticipate closing any of its 44 casinos under the plan.
The bankruptcy plan is opposed by junior noteholders as they will get less than 10 percent of the US$5 billion they are owed. The junior noteholders filed an involuntary bankruptcy against the operating unit in the U.S. Bankruptcy Court in Wilmington, Delaware on Monday. They are expected to ask to move the Chicago case to the Delaware court.