Will Caesars Examiner’s Report Help Junior Creditors in Restructurin...

Junior creditors seeking more money from Caesars Entertainment Corp. in the bankruptcy of its operating unit may have gotten a boost Tuesday evening.

After a yearlong probe, independent investigator Richard J. Davis filed a report concluding that Caesars and its backers, Apollo Global Management and TPG, orchestrated a series of transactions that hurt the Caesars Entertainment Operating Co., or CEOC, unit and its creditors. The deals give rise to potential legal claims against the parent company and its private-equity owners, Mr. Davis said, and damages could range from $3.6 billion to $5.1 billion. Caesars, Apollo and TPG dispute Mr. Davis’s findings.

Since Mr. Davis began his investigation at the behest of the Chicago bankruptcy court, CEOC and its creditors have pointed to the examiner’s report as the catalyst to recharge efforts to secure broad support among CEOC’s creditors for a plan to restructure some $18 billion in debt.

Experts say the report, which isn’t legally binding, will help junior creditors who argue that Caesars should contribute more than the less than $2 billion it has currently offered CEOC in exchange for broad liability releases in the restructuring.

“That just increased the settlement value,” says University of Michigan law professor John Pottow.

To be sure, court papers filed the day before the examiner’s report was made public indicate Caesars may be contributing more to the unit’s restructuring. CEOC lawyers say an ongoing investigation into the disputed transactions by independent CEOC directors recently dug up “material additional information” about the deals that warrant “enhanced contributions” from its parent.

Anthony Casey, a University of Chicago law professor, says junior creditors will likely “wave [the examiner's report] in the air and say, ‘Look how bad all this was.’” But he said any ammunition the report hands the creditors may largely be rhetorical.

“I don’t know that it changes the landscape much from what we already knew,” he said.

Melissa Jacoby, a University of North Carolina law professor, says the report points to the expense and uncertainty of litigation “suggests strong incentives” for a settlement.

“Even if the liability were clear, the report illustrates the challenges of calculating the remedies,” she added.

A retired federal judge is ready to serve as mediator in restructuring talks between CEOC and its creditors, and the examiner’s report could prove useful in those discussions.

The bankruptcy judge overseeing CEOC’s chapter 11 case certainly hopes the report helps broker a restructuring deal. In court Wednesday, Judge A. Benjamin Goldgar thanked Mr. Davis for his “Tolstoy-esque” work of 1,700-plus pages and said, “I have to believe it’s going to assist the parties greatly.”

Write to Jacqueline Palank at [email protected]. Follow her on Twitter at @PalankJ