As promised, Caesars Entertainment Operating Co. has filed its own voluntary Chapter 11 petition, setting up a showdown with junior creditors that want the company's bankruptcy to move forward in a different court. The subsidiary of Caesars Entertainment Corp. , headquartered in Las Vegas, submitted a petition early on Thursday, Jan. 15, in the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago. Judge A. Benjamin Goldgar was set on Thursday to consider a slew of first day motions, including requests for joint administration of CEOC's case with those of dozens of subsidiaries, continued use of its bank accounts, permission to continue customer loyalty programs and clearance to pay vendors. The debtor also has requested permission to tap its cash collateral, which it plans to use to fund its Chapter 11 case. CEOC said it has about $864 million in cash on hand, much of which is the cash collateral of secured creditors. These lenders would receive a replacement lien on the cash and adequate protection payments if use of the funds were approved, court papers show. CEOC had said it could commence the bankruptcy case as soon as Thursday in court filings this week in the Wilmington, Del., bankruptcy court, where junior creditors on Monday filed an involuntary petition against the casino operator. The debtor intends to implement a restructuring agreement that has garnered the support of 80% of its first-lien noteholders, the company said in a Thursday statement. "Today, with the overwhelming support of our first-lien bondholders, we are moving forward to implement our previously announced restructuring plan, which is intended to strengthen CEOC's financial condition and significantly reduce debt," CEOC chairman Gary Loveman said in the statement. "We believe this restructuring is in the best interests of all of CEOC's stakeholders and will result in a sustainable capital structure for CEOC and value creation for all stakeholders. The restructuring of CEOC is the culmination of a years-long effort to improve the health of CEOC's balance sheet, which has included substantial investment in new and upgraded assets, especially in Las Vegas. I am very confident in the future prospects of our enterprise, which will combine an improved capital structure with a network of profitable properties." Loveman emphasized that the company and its affiliates' locations will operate without interruption during the bankruptcy. CEOC intends to divide all of its U.S.-based gaming entities into two companies: an operating entity, or OpCo, and a publicly traded REIT that would own a newly formed property company, PropCo. The property company would lease its real estate holdings to the operating company in exchange for $635 million in annual lease payments. The company has said the restructuring would slash its debt by about $10 billion, by allowing the swapping of about $18.4 billion in outstanding debt for $8.6 billion in new debt. The company's annual interest expense would be downsized by about 75%. Parent company Caesars Entertainment would make "substantial cash and other contributions to support the restructuring," CEOC said in the Thursday statement. Court papers show the parent would contribute $406 million in cash to help implement the plan and has also agreed to provide an additional $75 million if there is not enough to fund the new capital structure. In a Thursday motion, CEOC requested permission to enter into a restructuring support agreement with the supporting first-lien noteholders that would serve as a basis for a reorganization plan. Under the RSA, first-lien lenders owed $5.36 billion would receive $705 million in cash, $883 million in first-lien OpCo debt priced at Libor plus 4%, with a 1% floor, and $406 million of 8.5% second-lien OpCo debt. Additionally, the first-lien lenders would receive $1.96 billion in first-lien PropCo debt priced at Libor plus 3.5%, with a 1% floor, and $1.45 billion in additional cash if the full amount of Caesars Palace Las Vegas' debt were refinanced. (CPLV plans to finance $2.6 billion in debt with third-party investors for cash proceeds by the implementation of the RSA, court papers show.) First-lien noteholders owed $6.35 billion, would receive $207 million in cash, $306 million in first-lien OpCo debt, $141 million in second-lien OpCo debt, $431 million in first-lien PropCo debt, $1.43 billion in second-lien PropCo debt and $1.15 billion in additional cash if the CPLV debt were refinanced. Additionally, the noteholders creditors would receive 69.9% of the equity in PropCo and 100% of the new OpCo common stock; noteholders would receive cash instead if they executed a put option. The put options would be at a price per share implying a total value of $700 million for all of OpCo's common stock and $269 million for 14.8% of PropCo's equity. If the put options were executed, Caesars Entertainment would purchase those equity interests instead. First-lien noteholders also have the option to purchase up to 50% of the preferred equity in PropCo at a price implying a total value of $250 million for all the preferred equity. For their deficiency claims, first-lien noteholders would share in the remaining equity of PropCo with trade creditors, second-lien noteholders owed $5.24 billion, holders of guaranteed unsecured indentures owed $479 million and holders of unsecured indentures owed $530 million. If the non-first-lien noteholders voted as a class to accept the plan, then the first-lien noteholders would waive their deficiency claims, and the remaining creditors would receive a pro rata share of the remaining 30.1% of PropCo equity. The non-first-lien noteholders also would have the right to purchase up to all of PropCo's equity at the same valuation as the put option. If the class rejected the plan, however, the group would split 17.5% of PropCo, with the first-lien noteholders waiving any distribution on their deficiency claims. The remaining 12.6% share in PropCo would be distributed pro rata to those receiving equity in the new entity, excluding first-lien noteholders. Under the RSA, the debtor would have to meet certain milestones, including filing a Chapter 11 plan within 45 days and obtaining disclosure statement approval within 150 days. Additionally, the company would have to win plan confirmation within 120 days of netting disclosure statement approval and then exit bankruptcy protection in the following 120 days. In a Thursday declaration, CEOC said the RSA is the result of more than six months of "intense, arm's-length negotiations" among the company, its affiliates and certain creditors. The company blamed its financial woes on economic conditions that have "squeezed the gaming industry" and said that despite its best efforts to extend its debt maturities and deleverage its balance sheet, it realized a "wholesale restructuring was required." Nonetheless, to implement the restructuring, CEOC will have to overcome opposition from bank lenders and second-lien noteholders. An informal group of bank lenders holding more than 50% of first-lien bank debt announced Monday it would not support the restructuring in its current form. CEOC on Thursday announced it had extended a consent deadline for the lenders to support the restructuring from Wednesday evening to Jan 26, Securities and Exchange Commission filings show. Junior creditors, meanwhile, have renewed an effort to keep the company's bankruptcy proceedings in Delaware. Second-lien bondholders led by affiliates of Appaloosa Management LP ($13.11 million), Oaktree Capital Management LP ($18.24 million) and Tennenbaum Capital Partners LLC ($9.73 million) had sought a stay of any parallel bankruptcy proceedings after commencing an involuntary Chapter 11 case for CEOC on Monday. Judge Kevin Gross of the Delaware court on Wednesday, however, ruled that any venue dispute was "premature," as CEOC had not actually filed it petition. The junior hedge fund creditors on Thursday then filed a renewed motion hoping to bar any parallel proceedings and keep the Chapter 11 case in Delaware. In court papers filed Wednesday in Delaware, CEOC said it did not take its decision to file in Illinois lightly, maintaining the Midwest is an "important hub" of operations for the company. The debtor said the area is home to seven of its 27 owned or operated casinos, more than any other region. Its properties span from Las Vegas to Atlantic City, N.J., in the U.S. as well as several in the U.K. and other international locations. The petitioning creditors had argued in a Tuesday court filing that Gross should "issue an order staying any later-filed, parallel Chapter 11 case involving the debtor" pending the court's determination of venue. The creditors argued that "allowing two Chapter 11 cases involving the same debtor and the same debts to proceed simultaneously is both practically untenable and contrary to applicable law." The petitioning creditors then on Wednesday specifically requested the case move forward in Delaware. Additionally, the creditors asserted Illinois is not the proper location for the case, as the majority of the Las Vegas company's largest creditors are based in Delaware. CEOC also is incorporated in Delaware. CEOC in a Wednesday response maintained the junior creditors were simply attempting to gain leverage in the "imminent voluntary bankruptcy." CEOC also said it had made no secret of its intent to file for Chapter 11 to implement the restructuring supported by first-lien noteholders. The debtor struck back again on Thursday, asserting the petitioning creditors simply were attempting to hinder CEOC's orderly reorganization. "Highlighting the weakness of their position, petitioners argue that Delaware is a convenient forum despite the fact that it is not as convenient as Chicago even as to them: two of three petitioners as well as their lead counsel are located in California," CEOC said. "Petitioners cannot articulate a single legitimate reason why the debtors' bankruptcy cases must be transferred from Chicago. To the contrary, the interest of justice and fundamental fairness dictate that the debtors' selection of venue should be respected." Gross was scheduled to consider the renewed requests at a Thursday morning hearing. Still undecided is the petitioning creditors' motion for appointment of an examiner. The group on Monday asserted "the appointment of a disinterested and impartial examiner is necessary to investigate and report on multiple transactions between the debtor and insiders, most of which occurred during the past 15 months and all of which were consummated during applicable reach-back periods for fraudulent transfers." Those transfers allegedly robbed CEOC of "many billions of dollars of assets and cash," the creditors said. They cited the bankruptcies of Dynegy Inc. and Residential Capital LLC as similar examples of companies that filed for bankruptcy following unfair "insider dealing." A hearing on the examiner request had not been set as of Thursday morning. CEOC has not formally responded to the involuntary filing. Under the federal Bankruptcy Code, a company has 21 days to contest an involuntary petition. According to court papers, CEOC is the largest operating unit of Caesars Entertainment, with the unit's casinos contributing $5.4 billion of Caesars' $8.4 billion in net revenue for the 12 months ended Sept. 30. The debtors employ about 6,500 people in Las Vegas and roughly 3,000 around Chicago. Private equity firms Apollo Global Management LLC and TPG Capital led a leveraged buyout of Caesars Entertainment for $30.7 billion in January 2008, sinking $6.1 billion in cash into the deal. Since then, CEOC's net revenue has fallen nearly every year, from $6.14 billion in 2008 to an estimated $4.76 billion in 2014. Shares in nonbankrupt Caesars Entertainment, listed on Nasdaq, were down 5.2% Thursday afternoon to $12.05. In its voluntary petition, CEOC reported $12.35 billion in assets and $19.87 billion in liabilities. The largest unsecured creditors include Law Debenture Trust Co. of New York (owed $530 million on unsecured notes), Clark County, Nev. ($46.9 million in special improvement bonds), the Iowa Gaming Commission ($42.63 million), International Game Technology ($28.54 million) and Hilton Worldwide Inc. ($25 million for pension plan litigation). A Kirkland & Ellis LLP team led by Paul Basta and James H.M. Sprayregen is debtor counsel. Basta couldn't be reached for comment Thursday. Domenic E. Pacitti and Morton Branzburg of Klehr Harrison Harvey Branzburg LLP also represent the casino operator. Randall S. Eisenberg of AlixPartners LLP has been tapped to serve as chief restructuring officer of CEOC. Caesars Entertainment's financial adviser is Blackstone Group LP. Alan W. Kornberg and Jeffrey D. Saferstein of Paul, Weiss, Rifkind, Wharton & Garrison LLP are providing legal counsel. Stroock & Stroock & Lavan LLP and Rothschild are advising the first-lien bank lenders. A Jones Day team including Bruce Bennett, James O. Johnston, Sidney P. Levinson, Joshua M. Mester and Monika S. Wiener and a Young Conaway Stargatt & Taylor LLP team in Wilmington headed by Robert S. Brady, Edmon L. Morton and Robert F. Poppiti Jr. represent the second-lien bondholders. Bennett and Brady couldn't immediately be reached for comment. — Lisa Allen contributed to this report. Read more from:
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