Caesars Entertainment Operating Co. won a bid to have its bankruptcy heard in Chicago, where it might be easier to protect the casino operator’s owners from liability for the $20 billion insolvency case.
U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware, Wednesday chose to move the case out of his court, where a group of lower-ranking creditors who oppose the reorganization had petitioned to force the unit into bankruptcy Jan. 12. Caesars filed its own petition in Chicago three days later.
“Ultimately, the overriding consideration is that the debtors chose the Illinois court,” Gross said. Letting the creditors win would be “bad precedent,” he added.
The decision is a victory for Apollo Global Management and TPG Capital, who control the company’s parent, Caesars Entertainment Corp., and have been targeted in lawsuits by disgruntled creditors.
The same day the Caesars operating unit, known as CEOC, filed for bankruptcy in Chicago, a judge in New York allowed a lawsuit against its non-bankrupt parent to go forward, saying the company wrongly stripped some debt holders of repayment guarantees.
In Chicago, the company will “remain focused on using the restructuring process to reduce CEOC’s debt and strengthen its financial position,” Stephen Cohen, a spokesman for Caesars, said in an e-mailed statement after Gross announced his decision.
The bankruptcy case will now be overseen by U.S. Bankruptcy Judge A. Benjamin Goldgar.
Gross said he’s confident the Chicago court “will view the debtors’ conduct under a magnifying glass and under the bright light” of the bankruptcy court rules. The allegations against Caesars’ parent, Apollo and TPG are “serious” and need to be scrutinized closely, he said.
The plan’s opponents said the parent of the Las Vegas-based gambling company chose Chicago because the courts there are more lenient about releasing non-bankrupt holding companies and affiliates from liability associated with a reorganization.
Lawyers for Caesars didn’t disagree, telling Gross that obtaining releases would make it easier to win approval for a reorganization proposal.
After the ruling, the group of second-lien noteholders leading the push for Wilmington saw the value of their holdings drop.
The $3.6 billion of 10 percent notes due December 2018 fell more than 2 cents on the dollar to 18.75 cents at 3:58 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. A smaller second- lien bond, the $750 million of 12.75 percent notes due April 2018, slid more than 4 cents to 17.25 cents at 2:05 p.m., Trace data show.
Gross listened to testimony and arguments over two days in Wilmington. As the judge in the first case to be filed, it was his decision whether to keep it or pass responsibility to his colleague in Chicago.
He didn’t immediately say what the official start date of the case will be. If he accepts Jan. 15, the day the Chicago case hit the docket, lower-ranking creditors will have a harder time challenging a deal Caesars made
That’s because the Chicago filing came one day past the close of a 90-day window after which bankruptcy law makes fighting some agreements more difficult. With a Jan. 12 filing date, the creditors would have an easier time overturning the deal, which gave senior creditors a lien on company cash.
A lawyer for Caesars warned that recognizing the earlier date would threaten a restructuring support agreement signed with senior noteholders in December. Also, the company’s main bankruptcy counsel, Kirkland & Ellis LLP, is based in Chicago.
Caesars has accused the lower-ranking creditors of trying to disrupt the pre-bankruptcy agreement. For their part, those creditors, who stand to recover far less on their notes, say Caesars, Apollo and TPG are trying to dodge responsibility for their actions by picking the court that’s more receptive to shielding insiders.
Each side claimed the decision on venue would affect future bankruptcy filings, but disagreed on how. Caesars said it would hurt negotiations with creditors because companies would fear a race to the courthouse. The creditors said it would force companies to try to negotiate more fairly with lower-ranking debt holders.
“It would be bad: bad for debtors, bad for creditors and bad for this court,” said David Zott, an attorney for Caesars. “It would transfer the venue choice, which the law gives to the debtor, to unhappy creditors.”
Gross agreed, saying Caesars deserved to pick where it wanted the bankruptcy administered, “even though the decision may have been made to favor third parties and insiders.”
The voluntary case is In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The involuntary case is In re Caesars Entertainment Operating Co., 15-10047, U.S. Bankruptcy Court, District of Delaware (Wilmington).
For more converage of distressed companies see Mergers & Acquisitions weekly Turnaround Tuesday column and our Distressed Company Watch List. For our most recent casino coverage, see Las Vegas Hard Rock Hotel & Casino In Talks with Lender.