Joel R. Glucksman
Partner
201-896-7095 jglucksman@sh-law.comFirm Insights
Caesars Bankruptcy Plan Dented By Federal Judge
Author: Joel R. Glucksman
Date: February 2, 2015
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A federal judge may have just dealt a fatal blow to Caesars Bankruptcy Plan.
Caesars bankruptcy was filed on January 15, 2015. However, in August, Caesars’ allegedly transferred a number of its assets to related business entities out of reach of creditors, according to Bloomberg. The company then canceled certain of its guarantees, so that holders of second-lien notes issued in 2005 and 2006 were cut out. These noteholders then filed an involuntary bankruptcy against Caesars Entertainment Operating Co., the largest of the Caesars operating companies.The noteholders alleged that Caesars was barred from altering its obligations to pay its bonds without full consent from the holders under Section 316 of the Trust Indenture Act.
District Judge Shira Scheindlin described the complaint as an allegation that Caesars’ plan was to put the main unit of Caesars bankruptcy while protecting TPG Inc. and Apollo Management LP from its creditors, the news source reported.
The ultimate result would be that first-lien noteholders would receive 92 percent of their stake, while second-lien noteholders would recover just $549 million of their $5.24 billion stake.
Scheindlin ruled that the deal was illegal, noting that it amounted to “impermissible out-of-court debt restructuring” that left bondholders “with an empty right to assert a payment default from an insolvent issuer,” according to ValueWalk. Caesars’ spokesperson Stephen Cohen expressed the company’s disapproval of the ruling.
“We respectfully disagree with the court’s ruling, which was based simply on the plaintiffs’ allegations and that we believe is inconsistent with the provisions [of federal law],” said Cohen. “And given the size of the claims at issue and our strong defenses, we do not expect the ruling to impact the planned reorganization.”
While the ruling was only preliminary, it is expected to strengthen the claims of second-lien bondholders alleging harm from Caesars’ asset switch.bt
Any thoughts on the federal judge’s blow to Caesars Bankruptcy plan? Feel free to leave a comment in the section below.
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