Caesars Entertainment Operating Company, Inc. is looking to cut its debt load of more than $18 billion roughly in half through a Chapter 11 bankruptcy filing. In March 2015 Judge A. Benjamin Goldgar of the U.S. Bankruptcy Court in Chicago tasked former federal prosecutor Richard Davis of Watergate fame with finding out, among other things, if the casino giant improperly transferred assets before the filing. Wednesday the judge made it clear to Caesars that he may favor putting the company into Chapter 7 liquidation if they continue to obstruct his ordered processes.

Caesars has stated that some 7 million pages of documents related to the Davis investigation are considered confidential or privileged throwing up an obstacle to a public release of the investigation. The judge authorized Davis to release a summary of his findings along with a redacted report while the broader issue of confidentiality is worked out. The report is expected to be released by the end of February.

The judge said that the issue of public access to the documents must be resolved, if not, “then this case is going to take rather a different turn from the one that I imagine the debtor and its parent and its affiliates would like to see,” he said.

The judge made it clear that there was more than one path forward, including an alternate management team for the bankrupt unit. “It doesn’t have to end with a confirmed plan,” the judge said. “A trustee could be appointed, the case could be dismissed or, my favorite, the case could be converted to chapter 7 (liquidation), which would just be a hoot, wouldn’t it?”

Senior creditors have largely signed-off on the Chapter 11 restructuring plan and would likely see a grudgingly acceptable return on their investments, while junior creditors would take a haircut. Caesars parent company is not in bankruptcy, but it is possible the entire corporation could see itself dismantled and sold off depending upon how the parties move forward and especially on the results of the Davis investigation.

Caesars is controlled in the majority by Apollo Global Management who transferred assets before the company’s operating unit filed for bankruptcy in January 2015. Many analysts are predicting that a settlement will be reached before the Davis report is released. The risks in not doing so include board members potentially becoming personally liable for some claims. Notable names on Caesars board of directors include NFL star and Pro Football Hall of Famer Lynn Swann; TPG Capital founder David Bonderman, and Apollo founder Marc Rowan.

If the report renders a finding of civil or other fraud in regard to the asset transfers Nevada and other state gaming officials could investigate Caesars as well.

Caesars troubles began when Apollo split the company into three units or separate companies. The operating unit was populated with 28 casinos, some of them the poorest performers in the 49 casino stable including Caesars Atlantic City. The two new entities received high performing casinos including The Linq and Planet Hollywood along with online assets and junior creditors insist the current operating unit was not properly compensated for those assets. Total claims against the bankrupt unit are slightly more than $18 billion.

 

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