Caesars Entertainment could be forced to pay US$5.1bn in damages for the pre-bankruptcy deals according to a court-appointed bankruptcy examiner.
Caesars and its private equity backers, Apollo Global Management and TPG Capital have been investigated for their actions leading up to $18bn bankruptcy protection filing. Hedge funds have said that Caesars raided its best assets to
The year-long, US$32m investigation, led by Examiner Richard Davis, is not legally binding. It focussed on whether Caesars removed its most profitable assets from Caesars Entertainment Operating (CEOC) before filing for bankruptcy.
Mr. Davis said: “The simple answer to this question is yes.”
He believes that claims against Caesars ranging from $3.6bn to $5.1bn would have a better than 50 per cent chance of legal success.
The report states that CEOC’s asset stripping included its best hotels and casinos, They were moved under the ownership of another company, meaning CEOC couldn’t keep up with payments on loans.
In the report, Mr. Davis said: “In assessing the actions of CEC and the sponsors (TPG and Apollo), it is important to remember that the sponsors are among the most financially savvy investors in the country. There was never any realistic chance that CEOC would ever pay all of its creditors at par through a refinancing of CEOC’s debt or otherwise, and CEC and [Apollo and TPG], in light of their own analyses, could not reasonably have thought differently. Actions that might have been beneficial to [Caesars] might have been less clearly, or potentially not, in the interest of CEOC and its creditor.”
TPG responded by saying: “In all respects TPG acted in good faith and with the underlying belief that the relevant transactions preserved value for all Caesars stakeholders.”
Apollo added: “Apollo acted appropriately and in good faith to help CEOC strengthen its capital structure, achieve substantial deleveraging, extend its economic runway and create value for itself and its employees, creditors, vendors and other stakeholders.”
Caesars Entertainment said: “Caesars Entertainment appreciates the effort of Mr. Davis and his team. We believe the evidence shows that each of the challenged transactions was undertaken to strengthen CEOC and provide it with the liquidity and resources required to sustain it and give it time to recover from unprecedented market challenges. These transactions provided immense and indisputable benefit to CEOC and its creditors, who received billions of dollars in principal and interest payments.
“This is ultimately a dispute about valuation, process and whether CEOC was solvent at the time of each of the transactions. We disagree with the Examiner’s subjective conclusions and opinions on these financial issues. Indeed, the Examiner’s conclusions are completely inconsistent with the careful analysis and considered opinions of the independent and highly regarded investment banks and law firms who advised on these processes.
“Despite these disagreements, Caesars Entertainment has agreed to contribute substantial and appropriate value to creditors in settlement of those issues as part of the plan of reorganization that is currently on file. The current plan keeps the Caesars family of companies linked together and maximizes value for all stakeholders, which will help provide the greatest financial outcomes for all parties. We hope the issuance of the report will facilitate ongoing settlement discussions and lead quickly to a consensual resolution of the Chapter 11 proceedings of CEOC.”