CET prearranged bankruptcy to be filed in January

CET prearranged bankruptcy

For those of you bitching about resort fees, downgraded offers, reduced benefits, etc.....

Whatcha gonna do?

I expect a number of their properties will be sold off

I agree with Hoops. Lots of assets will be sold, lot's of debt will be negotiated away, but the crazy employee expenses in Vegas will still linger.

CET needs to split the company into about 10 separate financial units, and play hard ball with the employees on a location by location basis. Location number one................here's the deal or we close. If the unions don't agree, sell the joint. Location number two..................here's the deal or we close......and so on.

The first thing they need to do is get rid of their CEO, Gary Loveman.

I know of no business model that advocates healthy businesses from steep debt. Get rid of him and get somebody else who is competent to clean shop.

You all know that they have already sold Planet Hollywood, the LINQ, Bally's, Cromwell, Harrah’s New Orleans, one Caesar's Tower and other properties to a subsidiary to protect those assets from bankruptcy.

Here's how it works. In 2008 hedgefunds Texas Pacific Group and Apollo Management overpaid for all these acquisitions, rang up 25 billion of debt and took the company private in a highly leveraged buyout. This year they fire sold these assets to themselves for a pittance of short term operating capital.

So those hedge funds will end up with all these properties free and clear. Caesar's Palace, the Rio and Paris (and a few others) will end up with all the debt. The banks and bondholders who financed the original purchasing binge will end up with pennies on the dollar.

This isn't about Unions breaking the company. There is no way in hell that debt would be paid back by operations...even if they cut their labor costs in half. They were betting property values would keep going up and up. Even though that bet didn't work, they (TPG and Apollo) were still able to fraudulently (IMHO) transfer the assets into a shell and leave others holding the bag.

I smell a bailout coming.

There is always the possibility the bankruptcy court won't approve, and force a more traditional liquidation of the properties. The bankruptcy court has the power to reach back and invalidate the sale of those other properties if they believe a more traditional sale would mean more money for creditors. It will certainly be an interesting case to watch.

Yes, it is insane to believe labor costs are the problem.

I have to agree with Boiler. The recipe out of a $900 million per quarter is to play hard ball with employees, eliminating their breaks, cutting their pay. I hate it when I am at a hot table and the dealer has to go on a break, changing my luck.

It will be interesting. Some bondholders sued at the time of the asset transfer claiming the assets should be liquidated and this was a scam to enrich the senior debt holders while postponing the inevitable bankruptcy. Caesers countered that the deal was necessary to avoid default and put the company back on sound financial footing. It's pretty clear who was telling the truth.

Yes, and now they can object and ask that the sale be voided based upon the idea that it was a fraudulent transfer that benefited insiders.

Peabody Coal got spanked hard for doing the same thing. They spun off all their debt to their retired employees to a new company called Patriot Coal and didn't give the new company enough assets to survive for more than a few years. Patriot Coal filed bankruptcy and the discovery process turned up documents that proved this was their plan all along. Even though the transfer was 4-5 years back Peabody ended up settling the case by taking all of their retired employee debt back so it is doable.

There just has to be a creditor that has a big enough war chest to go to war over it. I get the feeling that its Senior creditors lack such confidence in their own management skills that they think the only people that can operate the Casinos are the current management.

The sale of those properties are were pretty clearly designed to be a poison pill to any potential buyers. For example you can't really operate Bally's without the Pairs (they share a gaming license) and you can't do anything with one Caesars tower. This deal would also make the only potential buyers for the Pairs or Caesars in a liquidation the same group that was already spun off. So I think there are some strong arguments for setting aside the sale, but again it depends on if a small creditor wants to go to war with a bunch of big creditors over their deal. If they crunch the numbers and the cost of the war is more than they would gain they aren't going to do it. For example if the assume they are getting 0 on the dollar now what would the forced liquidation get them. Maybe they say $.05 on the dollar. So their war costs have to be lower than their total recovery from a forced liquidation.

All in all that leaves only Harrah's, The Flamingo and the RIO as subject to an open liquidation. I find it unlikely anybody will want to put a package together on those three properties to present to the bankruptcy court as a competing reorganization plan.