Caesars Battling $6 Billion Lawsuit From First-Lien Creditors
Posted on: June 17, 2015, 01:24h.
Last updated on: June 17, 2015, 02:53h.
Caesars Entertainment Corp (CEC) has been hit by a $6.3 billion lawsuit that is seeking to recover the outstanding amount, including both principal and interest on first-lien notes that were issued by Caesars Entertainment Operating Company (CEOC). The suit was brought by UMB Bank, which is the trustee for several of the issuances of those first-lien notes.
According to UMB, Caesars broke both the terms of the notes themselves and the US Trust Indenture Act when it chose to void the guaranteed repayment of those notes.
But Caesars is fighting back against the charges, saying that UMB is wrong to bring the lawsuit.
“CEC believes that UMB’s claim that CEC is obligated to guarantee the first lien notes is without merit,” Caesars said in a statement on Tuesday.
Caesars Wants Stay on Lawsuits
The UMB lawsuit will likely be tied in, at least to some extent, to other legal actions by CEOC creditors who believe that CEC is now required to guarantee the debts incurred by the operating company.
That’s why CEOC is looking for an injunction from the bankruptcy court, one that would prevent any prosecution of these matters while Caesars attempts to negotiate the disputes with the affected parties.
According to Caesars, UMB has agreed to be bound by the bankruptcy court’s decision on this regard. US Bankruptcy Judge Benjamin Goldgar has said that he will rule on the request to stay the lawsuits on July 22.
The lawsuit’s structure is complicated by Caesars’ restructuring efforts, which are complex and have attracted a variety of legal action.
Most of Caesars’ first-lien creditors have already agreed to a Restructuring Support Agreement (RSA), which means that they have agreed to the Caesars plan.
However, UMB is not one of the signatories to the RSA, and can thus file a lawsuit without violating the agreement or threatening the existing support from other creditors.
Caesars has expressed concerns that if the lawsuits aren’t stayed, those first-lien noteholders would “undoubtedly” join into the lawsuits, threatening the RSA and further complicating the process.
Restructuring Could Greatly Reduce Debts
Caesars is hoping that by filing for bankruptcy and reorganizing their holdings, they can greatly reduce the amount of debt in the company.
Under the plan being pursued by Caesars, long-term debt would be reduced by $10 billion, and annual interest payments would fall to $450 million from the current $1.7 billion they are paying.
One of the major aspects of the reorganization would be splitting Caesars’ business into two separate firms: one that would focus on operating casinos, while the other would be a property management company.
But some creditors are fighting this move, saying that Caesars and some of their major private equity backers would improperly benefit from the restructuring at their expense.
There have been accusations that Caesars moved many profitable aspects of their business to safe entities that were not impacted by the bankruptcy, leaving only less valuable assets for creditors to fight over in bankruptcy court.
What is a First-Lien Creditor?
A “first lien” refers to the prioritized lien on a property, one that takes priority over any other debts.
Thus, the first-lien creditors are those that have priority in collecting debts from the creditor, which in this case would be Caesars.
What is a Restructuring Support Agreement?
A plan support agreement, also known as a restructuring support agreement, is a binding contract that a company will seek from creditors to support a restructuring plan.
It typically assures that the creditors won’t vote against the plan, while the company agrees to execute the plan in a given time frame.
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