Bloomberg reports that billionaire John Paulson, principal of the hedge-fund firm Paulson & Co, along with other junior debt holders, are discussing a deal intended to successfully augment and salvage a bankruptcy plan. Caesars Entertainment Corporation (CEC) put its operating unit into Chapter 11 in Chicago earlier this year. The legal filing was an attempt to cut $10 billion of debt reducing the unit’s debt from 18.4 billion to 8.6 billion.

CEC is the largest casino operator in the United States. Apollo Management and TPG Capital are the primary and largest shareholders as a result of a $30.7 billion leveraged buyout in 2008. John Paulson is currently the second largest stakeholder with a 9% ownership, and Soros Fund Management the third largest as of March 31st. Other secured and unsecured junior debt and bondholders include Canyon Partners and Appaloosa Management hedge fund.

Some creditors have alleged that asset transfers in the past two years have put choice properties beyond their reach. The Wall Street Journal reported that the Caesars Entertainment Operating Company (CEOC), the largest unit of CEC, is planned to be reformed into a real-estate investment trust (REIT) and would be largely owned by the current senior creditors. Caesars has attempted to line up the larger stakeholders to win approval of this proposal so as to cut the lower-ranking debt and allow the private-equity owners to retain a stake in the operating unit.

However, Appaloosa Management has alleged in a Delaware filing that after Apollo and TPG purchased CEC, the owners then “looted” billions of dollars of valuable assets from the unit that owes the bondholders money, making bankruptcy inevitable. Those holdings included online gambling assets, a Las Vegas shopping mall, and a lucrative rewards program.

Recently appointed CEO Mark Frissora plans on taking the CEC in a new direction as well as lead the company out of bankruptcy. The World Series of Poker (WSOP) brand owned by Caesars may very well prove to be quite valuable as the gaming industry moves towards online play. WSOP is one of the most recognizable brands and the app is currently the most downloaded social poker app on the Apple App Store.

Caesars faces an important date in bankruptcy court July 22, and the bankruptcy judge will have the final say. In bankruptcy all creditors are entitled to a fair percentage of the restructuring agreement.

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