Why Caesars Entertainment Corp's Shares Popped 10% Today

Caesars Entertainment owns nearly half of the Las Vegas Strip, and it's teetering on the edge of bankruptcy. Image source: Getty Images.

What: Shares of gaming company Caesars Entertainment Corp surged as much as 10% on Wednesday as of 1:40 p.m. EDT, after receiving a small reprieve from a bankruptcy judge.

So what: U.S. bankruptcy Judge A. Benjamin Goldgar granted Caesars Entertainment's bankrupt subsidiary, Caesars Entertainment Operating Company (CEOC), a temporary injunction that will hold off separate lawsuits until August 29. The lawsuits are from junior creditors who allege that Caesars improperly transferred assets to the healthier parent company, and left their debt in CEOC, which was doomed from the moment it was formed. These creditors say they're owed $11 billion, and offers to restructure CEOC haven't come close to meeting those demands.

A court-appointed examiner found that creditors are likely right that there was wrongdoing, and may have claims again Caesars' majority owners Apollo and TPG, both private-equity firms. But so far, the court has refused to allow for these claims, which would likely bring the parent into bankruptcy.

Now what: This has been a long, drawn-out battle, and it doesn't appear it will be over soon. Unless they get a great offer that dilutes shareholders, junior creditors will likely hold out again, and try to pull all of Caesars Entertainment into bankruptcy. Frankly, I don't blame them given the extremely questionable transactions that led to CEOC's creation.

Betting on Caesars Entertainment to settle with creditors and/or win the lawsuits is a risky bet, and one with longer odds than I'm willing to accept.

The article Why Caesars Entertainment Corp's Shares Popped 10% Today originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool is short Caesars Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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