It’s very true. Caesars Entertainment Operating Co., a subsidiary of Caesars Entertainment, filed for bankruptcy on January 15, to try and get ahead of creditors who were suing to force the company into an involuntary Chapter 11. Although the junior creditors – from whose debts Caesars removed any repayment guarantees and who stand to lose almost all their investment – filed suit in Wilmington, Delaware, Caesars CEO Gary Loveman succeeded in having the proceedings moved to Chicago, claiming it had greater proximity to affected casinos like Harrah’s Joliet. (Never mind that Caesars owns East Coast casinos in Atlantic City, Philadelphia, and Baltimore.)
In addition, according to the Wall Street Journal’s "Money Beat" blog, "the Chicago appeals court made it easier for ailing companies to force creditors to drop lawsuits against third parties such as affiliates and company leaders, even if they themselves aren’t under bankruptcy protection." This is important because Loveman and his fellow architects of the Caesars bankruptcy are being sued for an allegedly fraudulent conveyance. Prized assets including Caesars Interactive, Harrah’s New Orleans, and The Cromwell were sold to subsidiary Caesars Acquisition Co. to shield them from Chapter 11. Also at issue is the (low) valuation placed on these assets: The company’s Total Rewards program and database were assessed at $0, for example. If you’re thinking this is beginning to sound like the Enron bankruptcy – which actually involved less money – you would be far from the first person to make that analogy.
As divided into what critics call "good Caesars" and "bad Caesars," the affected casinos are mostly low-value properties in secondary and tertiary markets, although Caesars Palace is in there, too. Control of these casinos will probably devolve to senior creditors in the bankruptcy scenario that Caesars is proposing. It would actually split off "bad Caesars" into a separate, real estate investment trust, run by a new management company. Senior creditors will get 87 cents on the dollar. Junior, unsecured creditors (who count among their ranks the likes of Gordon Ramsay, Robert De Niro, and Chef Nobu) will be lucky to get back a dime on the dollar.
Couldn’t Caesars just sell off casinos to retire debt? Well, it’s done a little of that, liquidating its minority stakes in two Ohio casinos and a horse track. It’s also closed one casino in Mississippi and another in Atlantic City. But its liabilities ($19.9 billion) dwarf its asset base ($12.4 billion). What’s more, the company has lost money for five years straight -- even when grossing $8.6 billion two years ago. Loveman hopes to get $18.4 billion in debt down to a mere $8.6 billion, which would also reduce the company’s staggering interest payments ($1.7 billion) to a somewhat more manageable $450 million a year. It also might enable the company to repay Clark County the $47 million it owes it for burying power lines that obstructed views of The Cromwell and Caesars Palace.
The Associated Press describes the leveraged buyout of Caesars – a $30 million transaction – as "a by-product of a buyout in January 2008 that was largely a wager using other people's money." But Caesars is likely to come through largely intact. As University of Nevada Las Vegas history professor Michael Green told AP, "Caesars is, in a certain sense, a Nevada version of 'too big to fail.'" Given the number of Caesars-run casinos and the size (68,000 people) of its workforce, that’s not at all surprising.
