Court-appointed bankruptcy investigator, Richard Davis, revealed in a 1,700-page conclusive report that Caesars Entertainment and its private equity backers could face between $3.6 and $5.1 billion charges for potential damages over a number of corporate decisions, which were allegedly the cause behind the bankruptcy protection that was filed by the casino company's operating unit last year.
Apollo Global Management and TPG LP together acquired Caesars Entertainment in 2008; Davis and his team of lawyers spent a full year investigating whether these companies had stripped away prime assets, such as the LINQ Hotel & Casino in Las Vegas and left Caesars Entertainment Operating Co (CEOC) unable to pay their debts.
“The simple answer to this question is ‘yes',” Davis wrote in the 80-page summary of his non-legally binding investigation, which was released to the public on Tuesday.
Davis also added that various potential legal “claims of varying strength” resulted from the series of deals – He reported claims for fraudulent transfers of assets and breaches of fiduciary duties against the directors and officers of the operating unit and Caesars Entertainment. In addition, he reported claims for aiding fiduciary breaches existed against both Apollo and TPG, none of which involved criminal or common law fraud.
Alex Bumazhny, who follows Caesars for Fitch Ratings said, “The report's scope was much broader than expected and it was much more creditor-friendly than expected.”
The report may be nonbinding but junior creditors, led by the Appaloosa Management hedge fund, have alleged CEOC was picked clean of its best hotels and casinos for the benefit of Caesars Entertainment, Apollo and TPG; and demanded better payouts in ongoing talks.
The junior creditors have also filed multiple lawsuits against Caesars and one case is expected to go to trial on May 9, 2016. Caesars said that they expects to win in this instance, but fear that a loss would plunge them into bankruptcy as well.
The 2008 buyout of Caesars by Apollo and TPG left them with an $18 billion debt which eventually led to CEOC filing for chapter 11 protection in January, 2015. Davis said, “There was never any realistic chance that CEOC would ever pay all of its creditors at par through a refinancing of CEOC’s debt or otherwise, and CEC and [Apollo and TPG], in light of their own analyses, could not reasonably have thought differently.”
“Actions that might have been beneficial to [Caesars] might have been less clearly, or potentially not, in the interest of CEOC and its creditors.”
CEC said, in a statement on Tuesday, that they disagreed with Davis's conclusions and stated, “the evidence shows that each of the challenged transactions was undertaken to strengthen CEOC,” adding that “these transactions provided immense and indisputable benefit to CEOC and its creditors, who received billions of dollars in principal and interest payments.”
Apollo said, they “acted appropriately and in good faith” to help CEOC “strengthen its capital structure, achieve substantial deleveraging, extend its economic runway and create value for itself and its employees, creditors, vendors and other stakeholders”. However, TPG representatives were not available for commenting on the report.
CEOC recognised the repost as an “important milestone” and said, in a separate statement, they planned to resume talks with creditors to try and file an updated plan of reorganisation to take them out of bankruptcy.
Dissatisfied creditors are now waiting for the release of the investigation before deciding whether to back Caesars to inject $1.5 billion into CEOC and settle the allegations.
There have been myriad legal disputes stemming from the bankruptcy. Davis' investigation of Caesars comprised over 8.8 million pages of documents and interviews with 92 witnesses. At a hearing on Wednesday, U.S. Bankruptcy Judge, Benjamin Goldgar, praised Davis' detailed report.