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US – Caesars bankruptcy restructuring runs into legal problems

By - 20 January 2015

A judge has ruled that Caesars Entertainment’s bankruptcy restructuring violates federal law as it moved assets to protect itself from junior creditors.

Investors that sued Caesars may yet be compensated for being forced into a restructuring plan that isn’t allowed outside of bankruptcy.

At this stage, US District Judge Shira Scheindlin has denied Caesars’ request to dismiss the suit, filed by junior creditors and said the transfer of valuable properties from one unit to another was a violation of the federal Trust Indenture Act of 1939. The ruling, although preliminary, could provide junior creditors with leverage to support their claims that they are being short changed.

Judge Scheindlin said Caesars’s reorganisation plan was an ‘impermissible out-of-court debt restructuring’ that left bondholders ‘with an empty right to assert a payment default from an insolvent issuer.’

“CEC’s ultimate plan is to push CEOC into bankruptcy while protecting Apollo and TPG from CEOC’s creditors,” the judge added.

A Caesars spokesperson, however, said it didn’t think the ruling would derail its restructuring efforts.

Ceasars spokesman Stephen Cohen said: “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 and given the size of the claims at issue and our strong defences, we do not expect the ruling to impact the planned reorganisation.”

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