Caesars Bankruptcy Mediator Quits

Posted on: September 12, 2016, 05:37h. 

Last updated on: October 12, 2016, 03:26h.

Joseph Farnan resigns as Caesars bankruptcy moderator
All Dressed Up: Former Joseph J. Farnan Jr. sporting the collegiate robes of Wilmington University where he sits on the Board of Trustees. (Image: photoshelter.com)

Caesars’ long-suffering mediator in its chapter 11 bankruptcy case has thrown in the towel.

The casino giant is currently embroiled in what one of its own lawyers described as the “largest and most complex bankruptcy in a generation” as it seeks to placate junior bondholders while shaving an $18 billion debt-load down to around $10 billion.

The bondholders, meanwhile, believe they have claims worth as much as $12.6 billion. They also accuse the parent company, Caesars Entertainment, of systematically stripping the bankrupt unit, Caesars Entertainment Operating Corp, of its most prized assets for the benefit of its controlling private equity backers.  

It’s no wonder that former federal judge Joseph J. Farnan Jr, the man charged with negotiating Caesars’ corner in all this, has had enough.

But surprisingly, his problem isn’t with the negotiation process itself; it’s the judge in the case, Judge A. Benjamin Goldgar.

“I Can’t Continue”

Farnan insisted in his resignation letter that he has “truly enjoyed working with the various constituencies involved with the effort of reorganizing the companies,” and that he does not wish to “fault or criticize” anyone connected with the case. Nevertheless, “recent events,” he said, “have convinced me that I am unable to continue the mediation process.”

Farnan appears to have been upset by Judge Goldgar’s assertion that a mediation report he submitted was short on details, despite the necessary confidentiality of such a report.

“Apparently the Court did not find my progress report helpful because I didn’t breach the confidentiality of the mediation and testify in open court or describe the discussions and proposals exchanged, and detail the status of the differences among the parties. I believe the Court either misspoke or doesn’t understand how such disclosures would be viewed by participants and the markets,” he complained.

“I am convinced that I can’t continue and possibly a new mediator will be able to establish a workable process,” he added.

Unprecedented Move

The former judge’s decision to wash his hands of the process has startled his colleagues. “Farnan is known to be an evenhanded person,” Temple University law professor Jonathan C. Lipson told the Wall Street Journal this week. “I never heard of a mediator resigning due to statements or conduct by the judge in the case.”

Goldgar last month refused to renew the shield protecting Caesars Entertainment Operating Corp from the litigation of its junior creditors, lawsuits that could potentially plunge the whole company into bankruptcy.

Despite the lack of a mediator, negotiations are understood to be continuing this week.