Cases & Deals


Caesars' second lien noteholders negotiate extraordinary recovery through consensual chapter 11 plan

Client(s) Caesars Entertainment Corporation Noteholders

Jones Day represented the Official Committee of Second Priority Noteholders ("Second Priority Noteholders") of Caesars Entertainment Operating Company ("CEOC"), the casino operator who filed for bankruptcy in January 2015.

CEOC sought to compromise fraudulent conveyance and other claims against its controlling parent company (CEC), Apollo Global Management, TPG Capital, and other insiders at very low values, initially offering Second Priority Noteholders a 9% (or $487 million) recovery over the objection of the Second Priority Noteholders. The Second Priority Noteholders caused the appointment of an independent examiner who, aided by Jones Day's analysis, concluded that the estates had significant claims related to pre-petition transactions that stripped assets from CEOC for the benefit of CEC, Caesars Acquisition Company, Apollo, and TPG. Specifically, the examiner found that "strong" or "reasonable" claims ranged from $3.6 billion to $5.1 billion. In addition, Jones Day prosecuted guarantee claims against CEOC's parent, caused CEOC to file a complaint on claims identified by the examiner, and opposed confirmation of CEOC's plan.

After several important litigation victories and aided by the examiner's report, Jones Day negotiated a multiparty settlement that was completely unexpected by market observers. The agreement lead to confirmation of a revised plan of reorganization by CEOC that provided distributions to holders of Second Priority Notes of: (i) $1.43 billion in cash; (ii) $899 million principal amount of 5% Convertible Notes (valued at $1.09 billion), which was convertible into 14.93% of new CEC common shares assuming the maximum cash buyback of New CEC common shares; and (iii) 19.07% of the fully diluted new CEC common shares (23.42% pre-dilution from the New CEC Convertible Notes) having a midpoint valuation of $1.10 billion. At midpoint values, the distribution to the Second Priority Notes class totaled $3.62 billion, or 65.5 cents on the dollar (exclusive of $47 million in reimbursement of expenses incurred by holders of Second Priority Notes and indenture trustees), an increase of more than $3.1 billion from CEOC's original offer to the Second Priority Noteholders and more than $1.51 billion from the distributions accorded to that class under CEOC's plan filed prior to the settlement.

The events of this engagement were subsequently chronicled in the book: The Caesars Palace Coup: How a Billionaire Brawl Over the Famous Casino Exposed the Power and Greed of Wall Street by Sujeet Indap and Max Frumes (Diversion Books, 2021), which captured this extraordinary outcome as follows: "Everyone in the case was numb. The bewilderment was not just over what had transpired in court that day but rather the six-month sweep by the second-lien group who had, against all odds, prevailed on virtually every crucial issue in the case. [Jones Day] had simply been a wrecking ball."

In re Caesars Entertainment Operating Co., Case No. 15-01145 (Bankr. N.D.Ill.)