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Caesars Entertainment Makes $4 Billion Pitch for Survival

By Travis Hoium - May 22, 2016 at 2:22PM

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A new pitch to Caesars' bankrupt unit's creditors sweetens the pot, but it might not be enough.

Image source: Caesars Entertainment.

Caesars Entertainment (CZR) is making another bid to keep itself out of bankruptcy. As part of negotiations with creditors to its bankrupt unit, Caesars Entertainment Operating Company (CEOC), the parent has offered to contribute $4 billion to the unit's restructuring. For creditors, it's a lot of money, but it still may not be enough.

The dispute over Caesars Entertainment

The core complaint creditors have is that CEOC was created in the first place. A few years ago, Caesars Entertainment split itself into multiple pieces, leaving a lot of the debt and weak assets with CEOC. There was essentially a "good Caesars" and a "bad Caesars," but the companies were split apart without the say of debt holders. As it became obvious, CEOC, the "bad Caesars," would file for bankruptcy, it brought about multiple lawsuits calling into question the asset transfers in the first place. 

Since Caesars Entertainment was basically proposing wiping out junior creditors as part of the CEOC bankruptcy, it's easy to see why they weren't happy. The judge also took a closer look at the legality of Caesars' transactions in a report that came out in March.  

The examiner's report called into question the legality of the transactions and said there could be up to $5.1 billion in legal claims against Caesars Entertainment (more detail on that report here). So, Caesars Entertainment has an incentive to make creditors happy enough to drop any lawsuits.

More money may not be enough

According to The Wall Street Journal, the new $4 billion plan proposed by Caesars would see senior lenders recover 113%-117% of what they're owed in cash, debt, and new company equity. Senior bondholders would get 96%-128% of value and junior bondholders would get 22%-48% of what they're owed, depending partly on if they accept the plan.

A big key to the plan is that it would include a liability release for Caesars Entertainment and the private equity firms that control the company, Apollo Global Management and TPG. But one problem is that Caesars Entertainment is fighting high-powered debt holders like David Tepper's Appaloosa Investment LP, Oaktree Capital, and Tennenbaum Capital. It's really a billionaire's battle for the future of Caesars Entertainment.  

What happens next?

This court battle is far from over and anyone who thinks they know what's next are probably mistaken. This court battle is already well over a year old, and I don't think we're all that close to a conclusion, even with the increased offer to debt holders. And now that the "good Caesars" is starting to see improvements in its operations in Las Vegas and in interactive, it would make sense for debt holders to want even more, since they think the entire Caesars Entertainment business should have been taken into bankruptcy.

This isn't a stock I would bet on one way or the other, but it's an interesting battle to watch play out with billions in bets on the line. It makes a Las Vegas blackjack table look like small potatoes.

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