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Caesars' gets its Chicago bankruptcy in win for Apollo

January 29
4:16 AM 2015

The bankruptcy of the operating unit of Caesars Entertainment Corp's will proceed in Chicago, a victory for the casino company's private equity backers over its hedge fund creditors who wanted the case in Delaware.

The ruling by a U.S. Bankruptcy Judge in Delaware sent shares of parent company Caesars Entertainment, which is controlled by Apollo Global Management and TPG Capital [TPG.UL], 6.5 percent higher in midday trade.

The ruling resolves Caesars' unusual situation of being in two bankruptcies at once, which began with what is known as an involuntary bankruptcy filing in Wilmington on Jan. 12 by Appaloosa Management and two other hedge funds. Three days later, the operator of 38 casinos filed its own Chapter 11 in Chicago with a plan to cut its debt to $8.6 billion from $18.4 billion.

Judge Kevin Gross said a Delaware case would reward the hedge funds and encourage angry creditors to race to a favored court to force companies into bankruptcy. That "would be bad precedent in future bankruptcy cases and for the ability of debtors to openly negotiate with creditors," he said.

Gross noted that the case turns on a court review of asset transfers from the operating unit to the parent company and to affiliates, which the judge said was "on its face suspect." Caesars has said those transfers, which included choice properties like the Linq complex in Las Vegas, were fair. Creditors have called it asset stripping and have filed various lawsuits.

Creditors have said legal precedent in Chicago will make it easier for the parent company, Apollo and TPG to get legal releases, or a shield against lawsuits, even though they are not in bankruptcy.

Creditors had argued that in Delaware the parent company and the private equity backers would have to pay more to settle challenges to the property transfers because of the court's higher hurdle for granting releases.

Caesars' restructuring plan involves splitting the bankrupt unit into a casino operator and a property company, a move that will exploit the higher values investors tend to place on real estate investment trusts.

The plan is backed by one class of creditors, a group known as the first-lien noteholders, who are owed $6.3 billion. Holders of more than $10 billion in debt generally oppose the proposed restructuring.

Kim Noland, an analyst with Gimme Credit, warned earlier this week that if the case was in Delaware, Caesars' plan was likely to unravel.

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