Caesars Shares Plummet Following Adverse Lawsuit Ruling
Share prices for Caesars Entertainment, Inc. (CZR) crashed on Wednesday following an adverse ruling in regarding a series of lawsuits brought against the casino-entertainment giant by several aggrieved debtholders.
In a ruling issued this afternoon in a Chicago bankruptcy court, U.S. Bankruptcy Judge Benjamin Goldgar denied a motion by Caesar Entertainment Corporation (CEC) attorneys to stay four separate lawsuits brought against the company and its CEOC operating unit by members of a “second lien” shareholder group. Those hedge-fund shareholders would see nearly $7 billion in investments largely wiped out if a Chapter 11 bankruptcy plan filed in January by Caesars’ main operational unit, Caesars Entertainment Operating Company (CEOC), is allowed to continue unimpeded.
The aggrieved lien-holders, who own CEOC debt, have filed the various actions against both CEOC and parent company Caesars (CEC), alleging that they were defrauded by Caesars’ gathering of maturing debt and unprofitable properties and gathering them together under the CEOC umbrella. Most of Caesars’s better properties and brands have been shifted to other units, outside of CEOC and its nearly $20 billion in debt.
The several hedge funds who filed the lawsuit allege that Caesars guaranteed its debts, and is now attempting to walk away from that commitment through the CEOC bankruptcy. Details of the bankruptcy released in April also included a mechanism whereby primary control of the Caesars empire would remain with Apollo Management Group and TPG Capital, who acquired the company (then Harrah’s) back in 2008.
Listed as parties to the various lawsuits against Caesars are these hedge funds and investment groups: Wilmington Savings Fund Society, FSB, Meehancombs Global Credit Opportunities Master Fund, LP, Relative Value-Long/Short Debt Portfolio, A Series of Underlying Funds Trust, SB 4 CF LLC, CFIP Ultra Master Fund, Ltd., Trilogy Portfolio Company, LLC, Frederick Barton Danner, and BOKF, N.A. The four cases against Caesars and its CEOC unit, plus assorted other defendants, were filed in Delaware and New York state.
Following today’s ruling, share prices for CZR plummeted by more than 40%, easily wiping out yesterday’s gain of about half as much on brighter news that Caesars had reached an agreement in principle with other debtholders from the fractious “second lien” group. Caesars stock closed yesterday at $8.02/share, opened lower today on general expectations that the ruling would not go Caesars’ way, then plummeted to $4.76/share after Goldgar’s ruling was released.
According to statements emanating from Caesars, Apollo and TPG, judgments in the four lawsuits rendered in favor of the second-lien litigants would reverse the series of transactions that consolidated debt into the CEOC unit, nullify the January CEOC bankruptcy filing, and quickly force all of Caesars Entertainment into a larger bankruptcy of its own.
Of interest to the poker and online-gambling worlds, such units and brands as the World Series of Poker, the Rio All-Suite Hotel & Casino in Las Vegas (where the WSOP) is held, and Caesars Interactive (Caesars’ online division, including WSOP.com) would all be subject to bankruptcy proceedings. Among the most dire of scenarios, should a larger CEI bankruptcy ensue, is the piece-mealing out of profitable brands and properties to other corporate buyers — and that list of profitable entities sold off in a fire sale could indeed include the WSOP.
Caesars quickly filed a required Form 8-K with the Securities and Exchange Commission (SEC) following today’s ruling, because of the ruling’s potential material impact on future operations. In that notice, Caesars wrote, “CEC believes the claims asserted in Lawsuits are without merit and will continue to vigorously defend against such claims.”
Caesars operates 50 hotel-casino properties in five countries in addition to other business units. The company has already received permission from Goldgar and another bankruptcy judge in Delaware to continue standard operational financing of the properties currently under the CEOC unit’s umbrella.