Caesars secures major creditor group support for revised plan terms

By Caroline Salls

Pittsburgh, Sept. 27 – Caesars Entertainment Corp. and Caesars Entertainment Operating Co., Inc. (CEOC) said CEOC’s major creditor groups support a term sheet for a proposed consensual Chapter 11 plan for the CEOC debtors.

According to a news release, based on discussions with representatives of these creditor groups, Caesars and CEOC are optimistic that the support received for the proposed consensual plan will allow CEOC to obtain the required creditor votes to confirm the plan.

The company said confirmation of the plan would facilitate a successful conclusion to CEOC’s bankruptcy proceedings in 2017 and enable Caesars and CEOC to move forward with a substantially improved capital structure.

Caesars said the parties are working on the definitive support agreements and amendments to its existing plan of reorganization that will adopt and implement the terms agreed to among the parties’ representatives.

Representatives of the informal groups of first-lien bank lenders, first-lien noteholders and subsidiary guarantee noteholders and an official committee of second-lien noteholders confirmed support for the term sheet, subject to the negotiation of and entry into definitive support agreements.

Through its existing restructuring and support agreement, Caesars said the unsecured creditors committee will also benefit from the proposed terms.

Under the term sheet, all litigation among these major creditor constituencies, Caesars and the CEOC debtors will be stayed voluntarily. Assuming a revised plan is agreed upon, the voluntary stays are expected to continue.

Equity contribution

Caesars said Hamlet Holdings, the entity through which funds managed by Apollo Global Management, LLC, TPG Capital, LP and some co-investors hold their interest in Caesars, will contribute the full 14% of the equity that it would have received through its ownership in Caesars in the plan currently on file. This contribution is valued by the debtors at about $950 million.

Although Hamlet will contribute all of its equity in Caesars, the public stockholders of Caesars will retain 6% of the equity in the reorganized company.

Creditor recoveries

As a result of the revised plan, relying on the valuation contained in the most recent disclosure statement filed by CEOC, creditors would receive the following recoveries:

• First-lien bank lender recoveries will be 115 cents on the dollar, a decline of one cent from the previous plan because of a $66 million reduction in cash distributed under the plan;

• First-lien noteholder recoveries will remain at 109 cents on the dollar. In exchange for a fixed cash payment of $142 million, the first-lien noteholders will waive their right to some excess cash to be paid under a separate court order, resulting in a $79 million net reduction in cash based on CEOC projections;

• Second-lien noteholder recoveries will be 66 cents on the dollar, an increase of 27 cents from the previous plan resulting from $345 million of cash, a 14.6% increase in fully diluted equity in the reorganized company and a $108 million increase in convertible notes in the reorganized company;

• Subsidiary guaranteed noteholder recoveries will be 83 cents on the dollar, a decline of one cent stemming from a less than 0.1% reduction in fully diluted equity in the reorganized company to be distributed under the plan; and

• Unsecured creditors will receive an increase in recoveries to 66 cents on the dollar, consisting of a combination of cash, an increase in the amount of fully diluted equity in the reorganized company allocated to unsecured creditors and an increased allocation of convertible notes in the reorganized company.

Under the revised plan and based on the current exchange ratio in the pending merger agreement between Caesars Entertainment and Caesars Acquisition, CEOC creditors would own about 70% of the fully diluted equity in new Caesars, while Caesars Acquisition shareholders will own 24%.

Equity election

According to a term sheet filed with the Securities and Exchange Commission, creditors in several classes will receive an election form to choose how much Caesars equity, if any, they would like to sell at a pre-conversion equity value of $5,880,940,000.

The buyback will use $1.2 billion of proceeds, with the first $1 billion to be used to buy Caesars equity under an initial buyback.

If the full $1.2 billion of proceeds are not used, the covenants in the master lease and support agreements, the convertible notes indenture and any other documents restricting Caesars’ ability to purchase equity will have a basket that allows it to purchase equity for any difference between the $1.2 billion and the amount actually used under the plan buyback provisions.

A total of $500 million of the proceeds will be used for operating company debt reduction on the plan effective date.

Covenant change consensus

In addition, Caesars and the CEOC debtors have consensus with some holders of CEOC’s first-lien notes to amend covenants in a proposed master lease and support agreement related to the operating company’s lease obligations to the property company to provide for restrictions on dividends and similar distributions at the new company for a period of six years.

The support of the first-lien noteholders for the term sheet is also conditioned upon an acceptable resolution of tax issues.

Caesars is a Las Vegas-based casino-entertainment company that filed for bankruptcy on Jan. 15, 2015 in the U.S. Bankruptcy Court for the Northern District of Illinois. The Chapter 11 case number is 15-01145.

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