The Caesars Palace Coup by Sujeet Indap

Author:Sujeet Indap
Language: eng
Format: epub
Tags: General Fiction
Publisher: Diversion Books
Published: 2020-12-25T00:00:00+00:00

A Thorough Examination

Bruce Bennett would have some early good fortune in Chicago. The Office of the United States Trustee acted, on behalf of the Department of Justice, as a watchdog over the bankruptcy system. At the outset of a case, the US Trustee would typically appoint an “Official Committee of Unsecured Creditors.” Unsecured creditors had no collateral, and included the most junior bondholders as well as vendors. Unsecured creditors for Caesars included the likes of the Earl of Sandwich restaurant, who had locations in Caesars casinos; IGT, the slot machine maker; and the National Retirement fund, which ran pension programs for certain Caesars retirees.

The UCC could investigate the company in Chapter 11 and its fees for bankers and lawyers were paid for by the bankruptcy “estate,” making it a powerful body. Bennett was hoping to muscle a few of his clients onto the UCC so they would have a louder voice in the process. But Kirkland did not want Oaktree or Appaloosa anywhere near that kind of power. It argued that the second-lien bondholders, because of their lien, were not really unsecured. And that since there were $5.5 billion worth of second-lien bonds, they would exercise disproportionate power.

The US Trustee in the case, Patrick Layng, agreed. But then he did something almost unheard of: he gave the second-lien bondholders their own, distinct committee officially known as the Official Committee of Second Priority Noteholders. Jones Day and Houlihan Lokey would now have their fees paid by the estate. The committee would include Appaloosa, Oaktree, Centerbridge, and Tennenbaum, and it would have a massive platform to prosecute its case. Kirkland attempted to disband the committee, citing the resulting cost and complications. But Goldgar chose not to overrule the US Trustee. Suddenly, Chicago was not looking so bad for Bennett.

Now that he had the momentum, Bennett played perhaps his strongest card. There was really only one way for his group of junior bondholders to get more than peanuts in a recovery. They needed independent fact-finding that confirmed their belief that Apollo/TPG had “systematically dismantled OpCo by stripping them of many billions of dollars of cash and assets,” as they had alleged in a February 2015 court filing.

Bennett’s best shot was to get the court to appoint a so-called examiner—a third-party authority figure—who had been given the power and resources to dig deep into everything that happened at Caesars in 2013 and 2014. For example, an examiner appointed in the 2012 bankruptcy of energy company Dynegy had found wrongdoing against Carl Icahn, who was a major shareholder. After a report was published, Icahn quickly ceded the case to creditors. Bennett wanted the same thing, moving the court for an appointment of an examiner with a broad scope and authority to investigate all the pre-bankruptcy transactions.

Imperiling Bennett’s play, the OpCo independent directors—Steve Winograd and Ronen Stauber—suddenly wanted an examiner, too. On February 13, 2015, the pair, along with their legal representitives, Kirkland & Ellis, filed their own motion seeking an examiner. But they wanted one with a much more limited scope than Bennett.

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