Bankruptcy examiner accuses Caesars of plausible claims

Richard Davis, a court-appointed bankruptcy investigator examining the Caesars Entertainment Corp. case has found the company and its private-equity owners brokered a series of deals that harmed its now-bankrupt operating unit and its creditors.

In a 1,700-page conclusive report, Davis said that the deals resulted in potential damages of between $3.6 billion (€3.2 billion) and $5.1 billion.

Davis was investigating whether Caesars and owner Apollo Global Management and TPG LP had harmed Caesars Entertainment Operating Co (CEOC) and its creditors by moving the unit’s assets prior to filing for bankruptcy last year.

In his report, which was made public yesterday (Tuesday) and is not legally binding, Davis said “the simple answer to this question is yes”.

Davis added that various potential legal “claims of varying strength” arose from the series of deals, with CEOC also having possible claims for aiding and abetting breach of fiduciary duty against Apollo, TOG and certain Caesars directors.

The examiner added that the claims, which do not include criminal or common law fraud, could lead to damages of up to $5.1 billion.

CEOC filed for chapter 11 protection in January last year with debt of $18 billion, which it took on as a result of a 2008 leveraged buyout by Apollo and TPG.

“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,” Davis said.

“Actions that might have been beneficial to [Caesars] might have been less clearly, or potentially not, in the interest of CEOC and its creditors.”

Although a TPG representative was not available to give comment on the report, Apollo said it “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”.

Caesars also responded, stating “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”.

CEOC hailed the report as an “important milestone” in its restructuring and said it now has plans to continue negotiating with its creditors in an effort to strike a deal to take it out of bankruptcy.

Related article: Judge warns Caesars over bankruptcy report