Delaware or Chicago: Troubled casino giant Caesars Entertainment Corp. should find out early next week where a subsidiary's Chapter 11 bankruptcy case will be decided.
Caesars prefers Chicago, where its Caesars Entertainment Operating Co. filed for bankruptcy protection filed Jan. 15. Three creditors prefer Delaware, where they are attempting to push the debt-heavy unit into involuntary bankruptcy and prevent it from proceeding with its own plan.
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A Delaware judge is set to decide the venue by Tuesday.
"Clearly, venue matters," said Anthony Casey, an associate law professor at the University of Chicago who specializes in bankruptcy law.
Perhaps the biggest difference might be a debtor's chances of limiting lawsuits against both the parent company and its owners, Casey said. Based only on previous cases, that may be easier to do in Chicago than in Delaware, he said.
Caesars has said it sought Chicago because it owns several casino-hotels in the Midwest.
The decision foreshadows what could be a lengthy court fight.
Some first-in-line bank lenders announced this week they had formed a committee to oppose the company's months-long negotiated bankruptcy plan that other creditors had agreed to.
The plan would shed $10 billion in debt from the operations division, leaving it with $8.6 billion and reducing its annual $1.7 billion in interest payments to $450 million. Senior creditors who approved the plan would get cash and new debt.
Fitch Ratings analysts say Caesars also faces legal scrutiny of its actions if a recent ruling against it in New York is any clue.
A federal judge there ruled Jan. 15 that Caesars may have violated the Trust Indenture Act by selling off assets and stripping away investors' guarantees without their approval, as alleged by creditors.
Unsecured creditors involved in the lawsuit are owed $530 million, according to the company's financial filings. They point to transfers in August that involved selling valuable assets from Caesars Entertainment Operating Co. — in which they were invested — to another division created by Caesars. Then Caesars took away its guarantee on the debt.
"We respectfully disagree with the court's ruling, which was based simply on the plaintiffs' allegations and that we believe is inconsistent with the provisions of the Trust Indenture Act," Caesars spokesman Stephen Cohen said in an emailed statement. "And given the size of the claims at issue and our strong defenses, we do not expect the ruling to impact the planned reorganization."
The case won't proceed against the subsidiary as long as it is in bankruptcy, but it could against the parent company. Caesars Entertainment Operating Co. could seek an injunction to stop lawsuits against its related companies.
The company's plan, drawn up with its most senior creditors, would allow business as usual at its hotel-casinos. Caesars' operations division has been burdened by debt that stemmed from a buyout in January 2008.