Et tu, Caesars?

In what has been the most anticipated bankruptcy case in the past several years, hours ago Caesars Entertainment (CZR) put its main operating unit under Chapter 11 bankruptcy protection in Northern Illinois bankruptcy court (case 15-01153) even as a splinter group of dissident creditors including Appaloosa and Oaktree, holders of about $41 million of Caesars debt and which allege the company has siphoned off billions in value from creditors, put the company into involuntary bankruptcy in Delaware bankruptcy court on January 12. As a reminder, Caesars was one of the sterling LBOs of the last credit bubble, when in 2008 Apollo and TPG decided to take the company private. The problem, as is always the case: too much debt, especially when combined with a broken business model, as Caesars has lost money every year since 2009.

While the Voluntary Bankruptcy Petition, see below, lists some three pages of operating units and affiliate debtors, it preserves the equity interests of the financial sponsors by keeping the parent Caesars Entertainment, out of bankruptcy.

As the petition also shows, the operating unit, which filed with more than 100 affiliates, listed about $12.4 billion in assets and $19.9 billion in liabilities. The Affidavit, to be filed shortly, will be a very riveting read on the real state of the Las Vegas gambling industry. 

The bankruptcy caps a long and contentious litigation between the various groups of creditors. As Bloomberg reports, last year, a trustee for holders of so-called second-lien notes sued the company and top management last year, accusing them of plundering the operating unit of its most valuable properties. The dissident creditors accused Apollo and TPG of trying to create a “good Caesars” to hold the valuable properties and a “bad Caesars” to owe most of the debt.

The conflict came to a head earlier this week, when some of those creditors asked the Wilmington, Delaware, bankruptcy court to put the unit into Chapter 11 and hire an examiner to review the asset moves.

Typically, when two bankruptcies for the same company are sought in different jurisdictions, the judge in the case that was filed first determines where they will be heard. Creditors in the involuntary bankruptcy had asked the judge in Delaware to bar any action in a rival case.

Caesars said in a court filing in Delaware yesterday that the creditors are trying “to wreak havoc on the orderly process the debtors, their professionals, and the many consenting stakeholders have been preparing for months.”

U.S. Bankruptcy Judge Kevin Gross in Wilmington has said he would consider a request to prevent any court action in a second case after it’s filed. The creditors today asked Gross to halt the proceedings in Chicago.

What's next for the debt-ridden casino operator? Under the consensual creditors' proposal, Caesars Entertainment Operating Co. would become a real estate trust with two divisions, one to hold property and one to manage casinos. The new company would have about $8.6 billion in debt. "The Caesars’ parent, in turn, would give senior creditors a stake in the new companies, according to negotiation details released in December. A judge would have to approve the arrangement."

The plan has received support from more than 80 percent of so-called first-lien noteholders, Caesars said in a statement today. Randall S. Eisenberg of AlixPartners was named chief restructuring officer of the operating unit, according to the statement.

The good news for an entirely different set of habitual gamblers, namely those eager to try their luck in the Caesars casino today, arguably a less rigged venue than the US equity market, it will be business as usual: "The properties across the entire Caesars Entertainment network are open and will operate without interruption,” Gary Loveman, Caesars chairman, said in the statement.

Full bankruptcy petition below.