%1

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. 

Caesars Entertainment Corp. defeated bondholder demands for an early resolution of a lawsuit alleging the casino company failed to honor guarantees of bonds issued by its bankrupt subsidiary, sending the case to trial, Reuters reported yesterday. U.S. District Judge Shira Scheindlin said yesterday that there were material disputes regarding a May 2014 stock sale and its impact on the guarantees on $750 million of unsecured bonds. Those disputes would have to be resolved by a trial, the judge said in a 31-page opinion that denied the bondholders' request for a quick ruling. Bondholders MeehanCombs Global Credit Opportunities Funds and Frederick Barton Danner alleged that Caesars violated the Trust Indenture Act, or TIA, by unilaterally releasing consent guarantees of bonds issued by its bankrupt operating unit. Scheindlin's ruling on Tuesday follows a similar decision in August in a case brought by representatives of other bondholders suing Caesars over similar violations of the TIA, a Great Depression-era law meant to protect bondholders. Caesars has said that if it loses the TIA cases it would likely be forced to join its operating unit in bankruptcy. Caesars said in court papers filed on Monday it would seek an injunction staying the case until 60 days after an independent examiner, Richard Davis, completed his investigation of alleged fraudulent transfers of the casino company's assets. The examiner was ordered by U.S. Bankruptcy Judge Benjamin Goldgar and the examiner's report is expected in early 2016.

An appellate court denied Caesars Entertainment Corp.'s request for a speedy appeal of an unfavorable decision in ongoing creditor litigation, which could heat up next year, Dow Jones Daily Bankruptcy Review reported today. Court papers show the U.S. Court of Appeals for the Second Circuit on Tuesday denied, for now, Caesars's request to appeal a preliminary ruling in litigation that seeks to hold Caesars to prior guarantees of billions of dollars of its bankrupt operating unit's debt. In August, Judge Shira A. Scheindlin of the U.S. District Court in Manhattan declined to quickly rule on whether a series of asset-shuffling deals last year constituted an out-of-court debt reorganization that harmed the holders of about $7 billion in bond debt issued by the Caesars unit. However, the judge's decision drew some conclusions that were unfavorable to Caesars, leading her to authorize the casino and hotel company to try to challenge those rulings at the appellate court while the bondholder lawsuits moved forward. But the Second Circuit declined to let Caesars's challenge to the decision move ahead now, finding it didn't persuade the court that there were "exceptional circumstances" present to justify a speedy appeal in ongoing litigation.

Some casino and hotel companies including Caesars Entertainment Corp. and Hilton Worldwide Holdings Inc. are expected to get a reprieve from a proposal to curb real estate investment trusts (REITs), Reuters reported yesterday. An earlier version of the $650 billion tax break bill detailed yesterday included provisions that would have potentially derailed major company deals that involve REITs, which have gained popularity among investors thanks to more favorable tax treatment. In the latest version, companies are exempt if by Dec. 7 they had requested that the Internal Revenue Service interpret and apply tax laws to their transactions, according to Senate Democratic leader Harry Reid's office, which backed the changes. The changes protect the operating unit of Caesars, which has filed for bankruptcy. The company's restructuring plans, which have support of most senior lenders and bondholders, call for splitting it up into an operating company and a REIT. Hilton also plans to spin off its hotel properties into a REIT.

Proposed changes to an obscure Depression-era law are causing a ruckus among the Wall Street investment funds that are battling over the debt restructuring at Caesars Entertainment and other companies, the New York Times DealBook blog reported yesterday. Tucked away in the omnibus spending bill in Washington, D.C., is an amendment to that law, the Trust Indenture Act of 1939, that critics say would hand a victory to Apollo Global Management, which owns the casino company, at the expense of some bondholders. Hedge funds and other bondholders have been at odds in the Caesars restructuring, which concerns about $10 billion in bond indentures. Six other restructurings could also be affected if the amendment is approved, including that of for-profit college operator Education Management Corporation, which is backed by the private equity giant Kohlberg Kravis Roberts & Company.

Caesars Entertainment Corp. is lobbying to roll back a Depression-era creditor-protection law that could complicate the casino giant’s financial restructuring, the Wall Street Journal reported today. The Las Vegas company and its owner, Apollo Global Management LLC, have been working to support legislation that would amend the Trust Indenture Act of 1939. Some lawmakers, including Sen. Harry Reid (D-Nevada), have pushed to include the measure in a sweeping spending bill that Congress must pass by Friday to avoid a government shutdown. An amendment to the law could gut lawsuits against Caesars brought by bondholders of the company’s bankrupt operating division. The bondholders have filed a lawsuit arguing that transactions that took the Caesars parent company off the hook to guarantee their debt violated the Trust Indenture Act. The law protects creditors against transactions that impair their principal or interest payments.

Black Eyed Pea restaurants in Texas declared chapter 11 bankruptcy DallasVoice.com reported yesterday. The restaurant on Cedar Springs Road is the original Black Eyed Pea that has been in that location since 1975. Over the past two years, 15 Black Eyed Pea restaurants in Texas have closed. 

The bankrupt operating unit of Caesars Entertainment Corp. (CEC) has appealed a ruling that would enforce payments of nearly $364 million in pension liabilities, Reuters reported on Friday. Caesars Entertainment Operating Corp. (CEOC) had asked the bankruptcy court to shield its parent from liability demands by the National Retirement Fund, a pension fund that covers thousands of employees across five affiliated Caesars companies. Bankruptcy Judge Benjamin Goldgar denied that request earlier this month, saying that CEOC's bankruptcy does not protect its parent. The dispute is one of many Caesars faces in its $18 billion chapter 11 case and it is not the first time that Judge Goldgar has denied a request to protect its parent from creditors' claims. In July, Judge Goldgar decided to allow lawsuits from hedge fund creditors against the parent to proceed. Caesars appealed the ruling but it was later upheld by U.S. District Judge Robert Gettleman. Caesars' lawyers have argued that claims against CEC could jeopardize the parent's ability to contribute cash to a reorganization plan to pull the casino group out of bankruptcy.

Caesars Entertainment Operating Co. (CEOC) and a group of its lenders are seeking to block a creditor group from bringing more lawsuits in the casino company’s litigation-heavy bankruptcy, the Wall Street Journal reported today. CEOC and the senior lenders that have already committed their support for the company’s restructuring filed papers on Friday opposing the official committee of unsecured creditors’ request to bring lawsuits — which the committee says CEOC can’t or won’t bring before the court. In their objections, CEOC and the lenders pointed to the progress they say the company has made in formulating its restructuring plan, as well as a settlement of various legal claims at the heart of the plan.

Bankruptcy Judge Benjamin Goldgar agreed yesterday to delay a crucial hearing to review Caesars Entertainment Operating Co.’s chapter 11 plan until an independent examiner completes his probe into the casino operator's pre-bankruptcy transactions, Reuters reported yesterday. The decision comes after junior creditor groups and a U.S. Trustee asked the court to reject a request from Caesars, the bankrupt operating unit of Caesars Entertainment Corp., to hold the hearing in late January. Judge Goldgar said that he would not schedule a hearing to approve documents describing the bankruptcy plan, known as a disclosure statement, without knowing when examiner Richard Davis will deliver his report. At the same hearing, Judge Goldgar also said he would probably deny an unusual request by a group of creditors to prevent the Kirkland & Ellis law firm from continuing to represent Caesars. Junior bondholders, represented by Jones Day, allege that Kirkland and Ellis have a conflict of interest and they have accused its partner James Sprayregen of misleading the judge in a previous trial on the issue. Goldgar did permit Jones Day to perform a limited investigation of its allegations, but also said the request to remove Kirkland would probably be denied.