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Caesars Prepares for Financial Restructuring
- August 6, 2014 By Oliver Young -
According to reports, Caesars Entertainment, one of the biggest casino operators in the world, is planning a financial restructuring. The company is expected to announce its second quarter earnings report next week along with its new line up. Alex Bumazhny, an analyst of Fitch Ratings, said that such restructuring is necessary and that the company would try a debt-for-equity exchange with a couple of junior creditors.
According to Bloomberg, Caesars Entertainment had started talks to find answers to over $12.7b of the company’s $24b total debt. As an indicator of how eager Caesars is to resolve these questions, it is reported that the company agreed to pay the fees of a group of creditors that are going over the books of the company.
Bumazhny believes that the first-lien holders of $6.35b will come out clear and unscratched, but the second-lien holders of about $5.2m may not be that fortunate, taking back 20¢ on the dollar or walking away empty handed.
The moves of Caesars Entertainment created a flurry of lawsuits. The creditors of Wilmington Savings Fund Society filed a lawsuit earlier this week, accusing the company of illegal asset shifting so that it protects its more profitable operations. Other creditors also filed similar lawsuits even though there were efforts to prevent the company from raising its debts to $1.75b which was thwarted by the gaming regulators in Illinois.
The claims come as a result of Caesars’ continuous strives to shift its more profitable operations from Caesars Entertainment Operating Co (CEOC). This sector holds most of the long-term debt of Caesars. The valuable assets that include certain land based casinos and the Internet gambling and social casino operations of Caesars Interactive Entertainment have been moved to Caesars Growth Partners (CGP). Here the company holds most of the stake.
Earlier this year, the company announced that it had sold 5% of CEOC to investors which allowed Caesars to free itself from obligations to honor IOUs which is held by CEOC creditors.
Caesars Strikes Back
Caesars also filed lawsuits in New York accusing Centerbridge Partners, Appaloosa Management, Oaktree Capital Management as well as Elliott Management for making threats and spreading allegations about the company’s status. The lawsuit seeks an explicit statement that the company is not in default of its debt obligations.
According to the statement sent along with the lawsuit, Gary Loveman, Caesars CEO, said that the company doesn’t want to be “held in hostage by speculators” that bet against the future of Caesars. Elliott Management in particular is singled out for having the biggest motive to see CEOC fall because it has taken credit default swaps on CEOC.
Caesars claims that the CEOC holdings of Elliott are insignificant compared to the amount of its credit default swaps which means that CEOC shares are worth more dead than alive. Furthermore, the lawsuit points out that the representatives of Elliott are part of the industry committee which is responsible for deciding whether or not the actions of the company mean that Caesars has entered default.
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