Judge: Caesars can be sued while unit in bankruptcy

Caesars Entertainment Corp. struck an agreement with a large group of the company’s second-tier debt holders, which could smooth out the bankruptcy reorganization of the casino operator’s largest business division. Yet the company has warned that the lawsuits are threatening the smooth resolution of its operating company’s bankruptcy proceeding, and if the legal battle that Caesars will now have to defend goes badly, Caesars itself might have to join its operating subsidiary by filing for bankruptcy protection of its own.

A judge refused on Wednesday to halt creditor suits against Caesars Entertainment, and the company’s shares briefly plunged about 60 percent on the day-to a low of $3.30.

Caesars Entertainment Corp. owns and operates 50 casino-hotels in five countries and employs 68,000 people.

The operating unit argued that temporarily halting the lawsuits would permit it to keep negotiating with creditors in hopes of winning enough support for a plan that would allow it to exit Chapter 11.

Goldgar said on Wednesday he would deny Caesars’ request to stay the creditor lawsuits in New York and Delaware courts.

Caesars has said the operating unit received fair compensation for the asset transfers, and Caesars has supported a review of the deals by an independent examiner ordered by Goldgar. Caesars alleged in an August 2014 lawsuit that the second-lien creditors harmed the company through false allegations and demand letters. For one, because some investors have holdings in many different Caesars securities, they may be more inclined to strike a deal.

In a preliminary ruling, U.S. District Judge Shira Scheindlin has already said Caesars’ creditors can seek a quicker-than-normal decision on whether the company violated federal law. “The bankruptcy court’s ruling was a technical interpretation of bankruptcy law and did not address in any way the merits of the New York litigation”, according to Stephen Cohen, a spokesman for Caesars Entertainment. Caesars is pushing to be among the rare exceptions to that rule.

First-lien bondholders and other higher-ranked creditors are divided.

The release notes, “The proposed transactions would reduce CEOC’s debt by approximately $10 billion, providing for the exchange of approximately $18.4 billion of outstanding debt for $8.6 billion of new debt”. Soros Fund Management and Canyon Partners LLC, who have been major parent-company shareholders and who have held junior bonds, were on board with the agreement. “PropCo would lease its real property assets to OpCo in exchange for annual lease payments of $635 million, subject to certain adjustments, with the lease payments guaranteed by Caesars Entertainment”.