Caesars Entertainment Debt Plan Snagged by Federal Court

The U.S Federal Court stated that Caesars Entertainment Corporation violated parts of the Federal Trust Indenture Act of 1939 while trying to reorganize its debt.  

A U.S Federal Judge made a ruling that crippled Caesars Entertainment Corporation’s plan to reorganize its debt. Caesar’s filed for chapter 11 bankruptcy protection a week ago. The Federal court accused the company of violating US gambling laws by re-shuffling assets and refined debt as a part of an alleged scheme to protect itself from lower-ranking creditors according to Bloomberg News.

<br a="" federal="" ruling="" was="" made="" in="" manhattan="" while="" related="" lawsuit="" chicago="" underway="" involving="" caesars="" entertainment="" operating="" co.,="" division="" of="" corporation,="" attempt="" to="" seek="" bankruptcy="" protection.="" the="" tried="" disregard="" suit="" filed="" by="" some="" note="" holders,="" but="" failed="" after="" u.s="" district="" judge="" scheindlin="" claimed="" that="" allegations="" transferring="" valuable="" properties="" from="" august="" violates="" trust="" indenture="" act="" 1939.=""

August Transactions Play Smoking Gun in Court

Scheindlin saw not only the property transfers unlawful, but more importantly the removal of the guarantees to creditors made by Caesars Entertainment as “an impermissible out-of-court restructuring” was “exactly” what the 1939 law “is designed to prevent.” Unfortunately Caesars can’t appeal now without approval by the judge. According to an emailed statement by the company, it disagrees with the ruling since it was substantiated solely on plaintiff allegations which they feel is not fully consistent with the provisions of the 1939 Act.

The August transactions, which made US gambling news, were part of the initial plan of reorganization by Caesars Entertainment Operation Company. In the plan, first-lien note holders were to receive 92% recovery and second-lien noteholders no more than 10%. Three days after Caesars Operation Co. filed for chapter 11 on Jan 15, the second-lien note holders filed their own involuntary bankruptcy petition in Delaware.