Caesars Entertainment Co. (CEC) said that its restructuring agreement with a group of second-lien lenders of bankrupt unit Caesars Entertainment Operating Corp. (CEOC) has failed to attract sufficient support from second-lien lenders, and therefore has expired and will not become effective.
The company said in a Form 8-K filed Sept. 21 with the Securities and Exchange Commission that it had been in discussions with second-lien lenders to extend the restructuring pact, but was unable to agree upon terms to do so. The company added, however, that notwithstanding the agreement’s expiration, it would “continue to engage in discussions with junior creditors on the terms of a consensual plan of reorganization for CEOC.”
The company also noted that the expiration of the RSA with second-lien lenders would “not affect” the separate restructuring pacts the company has entered into with first-lien noteholders and first-lien bank lenders, respectively.
As reported, the company announced the restructuring agreement with second-lien lenders on July 21, but said that it would not go effective until holders of more than 50% of the second-lien notes signed on.
The company did not disclose the level of support for the pact, but a report from Bloomberg at the time said that the noteholders agreeing to the pact held about 30% of the second-lien notes, and included names like Paulson & Co., Canyon Partners, and Soros Management.
“With the public announcement of the terms of this enhanced restructuring agreement, Caesars Entertainment and CEOC will seek to gain further support,” the company said at the time. Indeed, the pact included numerous provisions designed to induce support for the pact from lenders, including, on the carrot side, payment of potential forbearance fees and distributions of additional equity if second lien lenders sign on to the agreement, and on the stick side, threats of a cram down if they were to oppose the plan.
At the time it disclosed the agreement, the company was engaged in a last-ditch effort to convince a Chicago bankruptcy court judge to stay several lawsuits that had been filed against CEC by second-lien lender groups, even though CEC was not itself in Chapter 11, by arguing, among other things, that a consensual resolution of the issues being raised by second-lien lenders in the case was within reach.
Alternatively, the company warned that CEC could be forced to join its unit CEOC in bankruptcy if the lawsuits were allowed to proceed.
Second-lien holders have been a particular thorn in the company’s side, contending that a series of transactions entered into by the company over the past two years have been aimed at transferring valuable assets away from CEOC to the benefit of CEC’s shareholders, ultimately at the expense of CEOC’s second-lien lenders.
On July 22, however, the bankruptcy court ruled against the company, and allowed the lawsuits, pending in both New York and Delaware, to proceed. – Alan Zimmerman