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US –Caesars commences Chapter 11 despite fallout with junior creditors

By - 15 January 2015

Caesars Entertainment Operating Company, a subsidiary of Caesars Entertainment, is moving forward to implement its previously announced financial restructuring plan.

The operator said that the plan, which has received support from more than 80 per cent of first-lien noteholders, is intended to significantly reduce long-term debt and annual interest payments, while providing for significant recoveries for creditors and ensuring no interruption of operations across the company’s network of properties.

To implement the balance sheet deleveraging, CEOC and some of its US subsidiaries have voluntarily filed for reorganisation under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois in Chicago. All Caesars Entertainment properties, including those owned by CEOC, are open for business and are continuing to operate in the ordinary course. All properties are continuing to host meetings and events and provide the facilities, amenities and experiences that guests expect. The entertainers who perform at Caesars properties will continue to do so on their ordinary schedule. Caesars Entertainment, Caesars Entertainment Resort Properties and Caesars Growth Partners, which are separate entities with independent capital structures, have not filed for bankruptcy relief.

Gary Loveman, Chairman of CEOC, said: “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. 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 added: “The properties across the entire Caesars Entertainment network are open and will operate without interruption throughout CEOC’s reorganization process. Our guests will continue to earn benefits through the Total Rewards loyalty program, and our team remains entirely focused on delivering the same outstanding service and unforgettable entertainment experiences guests have come to expect from Caesars Entertainment. Going forward, we will continue to develop and deliver new, innovative hospitality experiences to our guests.”CEOC has filed, and expects to obtain approval for, various customary First Day Motions in the bankruptcy court in support of its financial restructuring. CEOC intends to pay suppliers in full under normal terms for goods and services provided on or after the filing date of January 15, 2015. Vendors and suppliers who work with affiliated entities that have not filed Chapter 11 petitions, including Caesars Entertainment, Caesars Growth Partners and Caesars Entertainment Resort Properties, will not be impacted.

As previously disclosed, under the terms of the proposed financial restructuring, CEOC will convert its corporate structure by separating virtually all of its U.S.-based gaming operating assets and real property assets into two companies: an operating entity called OpCo and a newly formed, publicly-traded real estate investment trust that will directly or indirectly own a newly formed property company PropCo.

The proposed transactions would reduce CEOC’s debt by approximately $10 billion, providing for the exchange of approximately$18.4bn of outstanding debt for $8.6bn of new debt. Annual interest expense would be reduced by approximately 75 per cent, from approximately $1.7bn to approximately $450m. PropCo would lease its real property assets to OpCo in exchange for annual lease payments of $635m, subject to certain adjustments, with the lease payments guaranteed by Caesars Entertainment.

Junior creditors of Caesars Entertainment shareholders have however filed court papers with the US Bankruptcy Court hoping to derail Caesar’s financial restructuring plan.

They want to prevent Caesars’ operating subsidiary from going into bankruptcy saying the subsidiary is ‘not paying its debts as they become due.’

Caesars claims it has secured the necessary level of creditor support to move forwards with its plans of changing the subsidiary into an operating element and another element that owns them. The move would shave US$10bn off the company’s $18.4bn.

Caesars’ skipped a US$ 225m interest payment in mid-December due to ongoing negotiations regarding the restructuring plan with senior creditors. Junior creditors said Caesars has transferred assets to an affiliate, including a luxury tower at Caesars Palace and the Linq, the Cromwell and Bally’s Las Vegas for an ‘unreasonably low sum.’

Lawyers for the Junior Creditors said: “The Petitioning Creditors filed this involuntary bankruptcy case on the heels of a series of suspicious transactions in which insiders plundered many billions of dollars of value from the Debtor. There is no question that the legitimacy of the transactions will be the single most important issue in this case.”

Caesars though slammed the junior creditors’ claims as being ‘without merit’ and said they were in a ‘baseless position.’

The operator stated: “The involuntary petition is a transparent attempt to thwart a restructuring that has been agreed to by more than two-thirds of CEOC’s first-lien shareholders. The action is designed to injure CEOC while these junior creditors attempt to boost their standing.”

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