A year ago, District Judge Shira Scheindlin of Manhattan seemed on the cusp of single-handedly blowing up the reorganization of casino giant Caesars Entertainment Operating Co. Inc. before it even got started, according to an analysis by ABI Editor at Large Bill Rochelle. It is less clear now whether she will come down on the side of bondholders who are attempting to reinstate guarantees granted by its nonbankrupt parent, Caesars Entertainment Corp. Caesars believes that the parent’s guarantees of several billion in bonds terminated because the operating company was no longer a wholly owned subsidiary of the parent as the result of transactions in August 2014. Bondholders sued in Judge Scheindlin’s court in September 2014, contending that the federal Trust Indenture Act prevented the termination of the guarantees without consent from each and every bondholder. Coincident with the casino operating company’s voluntary chapter 11 petition in Chicago in January 2015, Judge Scheindlin denied Caesars’ motion to dismiss. Her opinion seemed to indicate where she was ultimately headed when she said that removing the guarantees was “an impermissible out-of-court restructuring” that is “exactly what TIA Section 316(b) is designed to prevent.” Her two new opinions, on Dec. 29, 2015, and Jan. 5, 2016, show the danger of reading too much into a decision on a Rule 12 motion to dismiss, where allegations in a complaint must be taken as true. The new opinions both denied the bondholders’ motions for summary judgment to reinstate the guarantees. Judge Scheindlin found disputed issues of fact as to whether the Caesars operating company remained a wholly owned subsidiary. That question is significant because the indentures provide that the guarantees terminate when the operating company is no longer wholly owned.
