Please ensure Javascript is enabled for purposes of website accessibility

Caesars Entertainment Makes $4 Billion Pitch for Survival

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Caesars Entertainment Corporation Stock Quote
Caesars Entertainment Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.