Caesars on the brink; MGM gives Massachusetts a surprise

For want of $2 billion from Caesars Entertainment Operating Co., creditors are withholding their support for the reorganization scheme CEOC intended to present in bankruptcy court. A last-minute solution seems unlikely, if only because junior bondholders like Appaloosa Management and Tennenbaum Capital Partners have barely been talking with Caesars for the past two months. The news comes as other creditors are withdrawing their support from CEOC on the grounds that they “may see their stakes wiped out in any bankruptcy of the parent,” according to The Associated Press. And if that happens, it could trigger forward movement of a lawsuit against Caesars Entertainment for revoking the guarantees on its debt … litigation that could topple the parent company into Chapter 11 alongside its ailing subsidiary.

One of the sticking points may be that Texas Pacific Group and Apollo Management, architects of the Caesars disaster, want to stay in the driver’s seat, creditors be damned. The company has also evidently been unable to persuade aforesaid creditors that there’s no more money to be wrung from the casino giant. As University of Michigan law professor Erik Gordon put it to AP, “Part of the game of getting lenders to roll over and agree is making them believe that other lenders have agreed the deal is the best the lenders are likely to get.” It sounds like Caesars has rung up a ‘no sale’ on that line of argument.

The junior bondholders have a serious beef. Caesars’ proposed course of action would return them only 18 cents on the dollar, while they are seeking a 58% recovery of their debt. They also rejected a $400 million I.O.U. from Caesars. (To put that in perspective, Caesars seeks to make $4.4 billion in debt evaporate.) Some creditors, like Brigade Capital Management and Elliott Management Corp. are standing by Caesars but any reconfigured deal still has to run the gauntlet of the junior bondholders and Judge Benjamin Goldgar — it’s that or defeat a lawsuit for “fraudulent conveyances” and I’d be surprised if Caesars chooses to go down that road.

* Massachusetts gaming regulators got a rude jolt from MGM Resorts International, which sprung some last-minute redesigns on the Massachusetts Gaming Commission. Gone is the sweeping, 25-story tower. Instead, MGM will cannibalize real estate intended for apartments to build a squat, six-floor hotel tower instead. (Yup, you can just scribble over that picture there.) The apartments would still be built, but offsite. Project President Michael Mathis had cold comfort for the commission, saying, “The Springfield skyline is littered with high-rises. High-rises aren’t what’s going to make this work. It’s going to be our MGM brand, our player database.” Give him points for candor, demerits for public relations.

One commissioner, Enrique Zuniga, made bold to suggest that a downsized MGM Springfield would not be so lucrative. He also scolded Mathis, saying, “A significant feature of this project – what you sold this commission, this city and this community – is now no longer there, and I’m worried about it.” Added Chairman Stephen Crosby, “Somewhere along the line something happened that we didn’t know about until very late in the game.” Mathis chalked up the changes to a need to save money. That’s more than a bit ironic during a period in which MGM CEO Jim Murren has been playing Lady Bountiful, promising a billion-plus to Maryland here, Atlanta there (and expressing a newfound interest in Connecticut). MGM has chosen a helluva time and place to start cheeseparing, and it could sour what has been a beautiful romance so far.

In other business, the MGC stiff-armed Neil Bluhm‘s Brockton casino project, while promising to continue studying it. The MGC said it wasn’t ready to vote on Bluhm’s proposal, implying that it’s keeping a watching brief on the Mashpee Wampanoags and what they intend to do in Taunton, just down the road from Brockton. Meanwhile, experts are sounding the “death knell” for Bluhm’s project. Or: Thanks for playing and don’t let the doorknob hit you on the way out. Throw Brockton and Taunton into the same 25-mile radius as Penn National Gaming‘s Plainridge Park and the case for a Region C casino does become precarious.

* Kudos to Scientific Games for landing a two-year deal (with four biennial options) to supply the Ohio Lottery with instant games, continuing a relationship that dates back to 2001. (Would that more marriages were so durable.) The terms of the pact weren’t announced but it ought to be lucrative for Scientific: Last year, Ohioans spent $1.5 billion on instant games, a 9% increase from 2014.

* Congratulations to Derek Stevens on snapping up Fremont Street Experience President Jeff Victor and installing him as vice president of operations. His responsibilities will include “a upcoming Downtown Hotel-Casino.” So much for the suspense over the fate of the Las Vegas Club. It will “be entirely renovated and rebranded.” Victor is not without casino experience and spent almost a decade running the FSE, so he’s a logical choice to help Stevens ‘up-armor’ for his new challenge on Fremont.