Caesars’ Refusal To Be Transparent Leads To Manipulations
The latest escapade revolving around Caesars attempt to divest itself of nearly $10 billion of debt involves the refusal to reveal the contents of almost 7 million documents to former federal prosecutor Richard Davis, one of the point investigators during the Watergate investigation. Caesars maintains that the documents are confidential and, therefore, inadmissible as evidence in the case. Judge A. Benjamin Goldgar of the U.S. Bankruptcy Court in Chicago is calling on Caesars’ attorneys to explain their position.
When Apollo Global Management LLC and TPG Capital LP and other investors purchased the casino conglomerate early in 2008 for $30.7 billion using $6.1 billion of their cash and leveraging the rest with $24.7 billion in debt, the economic horizon looked promising. Then came the 2008 financial meltdown late in 2008 causing the debt to become an albatross hanging around the neck of the owners and investors. Managers quickly divided the corporation into three divisions, Caesars Growth Partners, Caesars Entertainment Resort Properties, and the troubled Caesars Entertainment Operating Co.
At issue is whether or not Caesars Entertainment Corporation (the parent corporation) transferred underperforming units to Caesars Entertainment Operating Co. and piled all its debt into that division while moving the most profitable units to Caesars Entertainment Resort Properties before filing for Chapter 11 bankruptcy on January 15, 2015.
It is the withholding of the 7 million documents by Caesars’ officials that gives Judge Goldgar pause. At this stage, the appearance of hiding information from the court makes any imminent decision impossible.
According to Caesars’ officials, the Corporation has finished negotiations with its creditors and lenders for a reorganization plan. The plan would include moving the troubled division into a real estate investment trust promising creditors the probability of later cash earnings.
Though attractive to its primary creditors, this plan does not take into consideration the losses of its junior investors who will be left, quite literally, holding the bag. In response, immediately after the bankruptcy petition was filed, the junior investors, led by the Appaloosa Management hedge fund, filed an involuntary bankruptcy petition to delay the proceedings. That delay is costing the bankruptcy filers dearly.
Discovery of proof that Caesars Entertainment Corporation officials intentionally manipulated the makeup of their divisions to cancel all debt through bankruptcy, then the bankruptcy procedures may move from the requested Chapter 11 bankruptcy to a Chapter 7 bankruptcy which is a whole new problem for Caesars’ owners.
In the case of a Chapter 7 bankruptcy, the entire corporation may be dissolved leaving shareholders and officials personally liable for the accumulated debts. In that case, there would be a whole series of bankruptcy petitions by individuals rather that the Corporation.
The refusal by Caesars’ officials to be forthright and upfront with possible evidence has created an angst driven atmosphere, especially for Caesars Board of Directors. With legal manipulation comes more legal manipulation. Where it will end may just determine the financial future for many, including everyone from management to employees. Currently, all Caesars divisions are open for business. How long that may continue appears to be dependent on the cooperation of Caesars officials who, so far, seem to be reluctant to move to a more transparent stance.
