Caesars Entertainment operating unit files amended reorganization plan

The restructuring plan, filed in the chapter 11 case of Caesars Entertainment Operating Co., carries the support of senior creditors holding about $12 billion of a debt load that totals more than $18 billion and “is the product of hard-fought negotiations,” CEOC said in court papers filed Thursday.

Like its prior plan, the new proposal would split CEOC into two companies—one would operate its casinos while another would own its real estate. The prior plan also sought to cut $10 billion in debt off the company’s books.

The amended proposal reflects Caesars’ deal-making with key creditors in the last few months. Holders of Caesars’ senior loans in August agreed to support the casino operator’s plan to restructure the bankrupt unit, following a similar deal first secured late last year with the unit’s senior bondholders.

According to an outline of the new plan, senior bank lenders owed about $5.35 billion could share in nearly $3.2 billion in cash as well as new debt. Senior bondholders owed more than $6.3 billion could share in $1.45 billion in cash as well as new debt and new equity in the restructured companies.

The new plan would give junior creditors, including second-lien bondholders owed $5.2 billion, 17.5% of the equity in the property-holding company, though those shares would be increased should they vote for the plan. A yes vote would also get them $450 million of convertible notes issued by Caesars Entertainment, the non-bankrupt parent company.

A yes vote would produce an estimated recovery of 18% of the junior creditors’ claims, while a no vote would put their recovery closer to 5%, according to the plan outline.

In conjunction with the plan, CEOC filed court papers asking the U.S. Bankruptcy Court in Chicago to extend the time in which it alone may file a restructuring plan, to March 15, 2016, from Nov. 15. The company says the extension, which would shield it from the threat of rival proposals, will help efforts to bring its junior creditors on board with the proposal.

The company reached a deal on a restructuring with some of the second-lien bondholders this summer, but the deal was terminated last month after it failed to gain support from the holders of more than half of that debt. Still, CEOC said in court papers that the now-scrapped proposal established “an important baseline” for talks going forward.

A number of hurdles exist before any CEOC restructuring plan can take effect. The plan is subject to a creditor vote and bankruptcy-court approval. It could also be affected by the outcome of a continuing, court-ordered investigation into the company’s prebankruptcy asset transfers.

Certain creditors are separately suing CEOC and its publicly traded parent to challenge those asset transfers, which they say stripped them of their rights and moved good assets out of their reach. Caesars has defended the moves as proper and necessary to shore up its struggling unit’s balance sheet.

What’s more, the Caesars parent, which isn’t in bankruptcy, has warned that losing these courtroom battles could prompt it to join its operating unit in bankruptcy, jeopardizing restructuring efforts and threatening the investments of Caesars shareholders like Apollo Global Management LLC and TPG.

Also, some of the gambling company’s junior bondholders are currently squaring off with CEOC in bankruptcy court, which is presiding over a continuing trial over the involuntary bankruptcy filing that the bondholders filed against CEOC three days before it voluntarily sought chapter 11 protection. At stake in the trial is which creditors can lay claim to nearly $500 million in cash.