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Bondholder Battles Continue at Caesars Entertainment

Leading US-based gambling entertainment firm Caesars Entertainment continues to be among the industry’s most forward-looking entities regarding online poker and online gambling, even as the firm remains mired in shareholder and corporate financial battles that endanger the company’s long-term plans.  A week ago, two lawsuits were filed involving the company and a group of dissident bond holders who continue to protest against the company’s financial restructuring efforts.

caesars-acquisition-logoCaesars has filed a lawsuit against a group of 30 bond holder entities who have openly battled against Caesars’ latest announcement of a plan to restructure more than $12.7 billion in debt.  According to various reports in financial media, the lawsuit’s defendants include many of the secondary hedge fund groups who have bought into the company, including Oaktree Capital Group Holdings LP, Appaloosa Management LP, and Elliott Management Corp.

According to a Caesars presser:

“The complaint names certain institutional investors who hold second-lien notes issued by CEOC, along with Elliott Management Corporation, which holds first-lien notes. Caesars and CEOC believe Elliott holds a significant CDS position. The complaint alleges that second-lien holders served CEOC with a baseless notice of default. The complaint seeks declaratory and injunctive relief to prevent further damage to Caesars and CEOC. The complaint also seeks damages from the defendants.

“‘We refuse to be held hostage by speculators who appear to be betting against the long-term health of our enterprise as well as our more than 60,000 employees and the communities in which we operate,’ said Gary Loveman, Chairman and Chief Executive Officer of Caesars and Chairman of CEOC. ‘Since the beginning of the financial crisis, we have worked collaboratively and constructively with debtholders in an effort to improve CEOC’s financial condition while investing in the business and taking steps to enhance operating performance. Caesars and its family of companies have completed more than 50 capital markets transactions to improve CEOC’s financial condition. Neither Caesars nor CEOC have ever missed an interest or principal payment despite the extremely challenging environment. The meritless actions taken by the defendants impede our ability to conduct rational negotiations with holders to further improve CEOC’s financial condition.’

“The complaint alleges that defendants’ actions have included demand letters, disruptive appearances before gaming regulators and the transmission by second lien holders of what Caesars and CEOC believe is a baseless default notice. They now are seeking judicial action to lay these claims to rest. Caesars and CEOC will continue to engage in constructive discussions with creditors.”

At least one of those debtholders immediately fired back.  Wilmington Savings Fund Society, listed as a trustee for a package of Caesars debt notes not due until 2018, sued the company in Delaware, accusing Caesars that the complex financial restructuring being undertaken is, in fact, a fraudulent transfer of assets.

Caesars has been involved in a long-term juggling act after burying itself under a massive debt load at the height of last decade’s housing and investment boom, which fueled a large number of highly leveraged acquisitions.  Caesars was initially taken private back in 2008, in a $30.7 billion leveraged buyout by Apollo Global Management LLC (APO) and TPG Capital.  Once the investment boom collapsed and interest rates dropped, the high debt load crippled the company’s plans.

Caesars remains more than $23 billion in debt, the industry’s largest such figure.  Stock prices for the company have tanked and the dissident investment groups’ plans appear to be force the company to divest more of the corporation’s assets as a means of reducing the company’s debt load.  Instead, Caesars executives have committed to a plan of restructuring debt between several major corporate entities, including Caesars Entertainment Operating Co. and Caesars Acquisition Co., a newer debt holding group, while attempting to renegotiate and lower its long-term debt.

Such negotiations include last month’s approval by Illinois regulators of a $1.7 billion refinancing, done over the protests of many of the same opposing bondholders.

It’s within this complex battle that Caesars continues to press forward with its online gaming interests, and the company’s precarious financial position may be one reason why opposing industry forces, including Sheldon Adelson’s Las Vegas Sands Corporation, have lined up against online gambling.  Despite Adelson’s claims of ethical principles, his anti-online moves also impede primary competitor Caesars, among other industry giants.

 

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