A group of second-lien bondholders of Caesars Entertainment Corp are trying to push the casinos core operating unit into bankruptcy after it failed to deliver interest payments.
In December Caesars Entertainment Operating Co defaulted on $225 million in interests due on $4.5 billion in second-lien notes. The move prompted the group, including Oaktree Capital Management, Appaloosa Management and Tennenbaum Capital Management, to take action and on Monday it filed for involuntary Chapter 11 bankruptcy petition against the unit.
Caesars, which was acquired by Apollo Global Management and TPG Capital in 2008, has developed a course of actions in order to transforms its largest operating unit and reduce its total debt of $18.4 billion to $8.6 billion.
Under the plan, CEOC was set to voluntarily file for bankruptcy by January 20 and divide itself into two companies, one of which projected to be a real estate investment trust.
Caesars, the largest casino operator in the US, said on Friday it had received the support needed from senior investors in order to launch its restructuring plan, which is poised to be completed by February 2016.
The Junior creditors accused Caesars that it was intentionally moving assets out of second-lien bondholders reach and asked the court to appoint an examiner “to investigate and report on a series of pre-petition insider transactions.”
According to the filling CEOC began executing these transactions 15 months before the bankruptcy and so far it had stripped billions of dollars of assets and cash.
However, Caesars dismissed the accusations and said that “the action is designed to injure CEOC while these junior creditors attempt to boost their standing.”
The involuntary bankruptcy, which was filed in Delaware, can be contested by Caesars or the casino operator can initiate a voluntary one. The company said it will continue with its restructuring plan, despite the filling and operations in CEOC will continue as usual.
A similar situation happened in 2011, when junior creditors of Dynegy, the US electric utility based in Houstan, Texas, asked for a examiner to investigate a wave of assets being moved to the parent company.
The appointed officer discovered that the asset transfers were not legally justified and the transactions were later reversed, putting back the assets into the bankruptcy.
Caesars Entertainment Corp lost 4.19% on Monday and closed at $13.25 on NASDAQ, marking a one-year decrease of 43.42%. The company is valued at $1.91 billion.
According to the Financial times, the 4 analysts offering 12-month price targets for Caesars Entertainment Corp have a median target of $9.50, with a high estimate of $17.00 and a low estimate of $9.00. The median estimate represents a 28.30% decrease from the last close price.