A cross-jurisdictional fight has broken out between Caesars Entertainment Operating Company (“Caesars”) and three of its second lien noteholders. Following weeks of public disclosure regarding its intent to file a consensual chapter 11 case with the support of its senior secured creditors, Caesars was surprised on January 12 when Appaloosa Management LP, Tennenbaum Capital Partners, LLC, and Oaktree Capital Management, LP, through their respective investment vehicle special purpose entities holding second lien Caesars notes (the “Petitioning Creditors”), filed an involuntary chapter 11 petition against Caesars in Delaware bankruptcy court.
The Petitioning Creditors also filed emergency motions seeking the immediate appointment of an examiner, staying “any later-filed, parallel chapter 11 cases that may be commenced by [Caesars]” and a determination of venue for which any such Caesars case should proceed. On January 14, Delaware bankruptcy Judge Kevin Gross denied the Petitioning Creditors requests regarding stay and venue determinations for any later-filed parallel proceedings, noting that both requests were premature unless and until Caesars filed a voluntary case.
Shortly after midnight on January 15, Caesars did, indeed, file a voluntary chapter 11 petition for itself and nearly 180 subsidiaries in the Northern District of Illinois bankruptcy court. The Petitioning Creditors immediately renewed their stay and venue motions. A hearing in Chicago on the voluntary case’s first day motions was scheduled a mere 90 minutes after a hearing on the Petitioning Creditors’ stay motion was scheduled to take place in Delaware. Immediately following the hearing on the stay motion, Judge Gross issued an order granting the Petitioning Creditors’ motion and staying all proceedings in the voluntary case until an order determining the venue in which Caesars’ chapter 11 case may proceed is determined. The stay order included a carve-out for certain items listed on the agenda for the first day hearings scheduled in the voluntary case, including the use of cash collateral, joint administration of the Caesars’ cases, PACA, critical vendors, employee wages, and other typical first day fare.
The crux of the fight between Caesars and the Petitioning Creditors appears to center around a series of transactions taking place in the 15 months prior to the petition dates. The Petitioning Creditors state in their motion for the appointment of an examiner that they commenced the involuntary case in response to Caesar’s election not to pay a $225 million interest payment due to the holders of certain second lien notes on December 15, including the Petitioning Creditors. In its memorandum in support of chapter 11 petitions filed in the voluntary case (and again in the involuntary case), Caesars is quick to point out that as of the involuntary petition date, the 30-day grace period on the missed interest payment had yet to fully run. More broadly, the Examiner Motion cite several pending cases in New York and Delaware, initiated by noteholders and other creditors, alleging fraud, fraudulent transfer, breaches of fiduciary duty, waste, and seeking the appointment of a receiver over Caesars’ assets.
At present, a hearing on the venue motion has not yet been set; the Petitioning Creditors have requested it take place no later than January 20. While relief pertaining to the essential aspects of keeping Caesars’ businesses (and 36,000 employees) afloat in the interim have been exempted from the stay imposed by the Petitioning Creditors, little else can proceed in either case until the venue issue is resolved. We will continue our reporting and analysis of the Caesars cases as they progress.
The voluntary case is In Re: Caesars Entertainment Operating Co. Inc. et al., case number 1:15-bk-01145 in the U.S. Bankruptcy Court for the Northern District of Illinois; the involuntary case is In re: Caesars Entertainment Operating Company Inc., case number 15-10047-KG, in the U.S. Bankruptcy Court for the District of Delaware.