The International Swaps and Derivatives Association (ISDA) Determination Committee Americas sent the query involving a $26.9 billion of credit-default swaps linked to Caesars Entertainment to an arbitration panel after failing to make a decisive ruling.

Caesars CDS: ISDA Sends Query to Arbitration Panel

The ISDA Determinations Committee is composed of 15 voting panel including Citibank, Elliott Management, Goldman Sachs International, Pacific Investment Management Co. (PIMCO) and Morgan Stanley & Co. International plc among others.

The five voting firms mentioned above voted “Yes” for the payouts to be triggered on the credit defaults swaps outstanding on Caesars Entertainment Corp. The payouts are worth is as much as $1.7 billion, according to the latest figure from the Depository Trust & Clearing Corp.

Claim against Caesars

Since five of the 15-voting firms voted yes, the Determinations Committee did not meet the 12 votes needed to dismiss the claim that a failure to pay credit event occurred when Caesars Entertainment Operating Company (CEOC) did not pay the principal and interest payment for the 10% second-priority secured notes  (due 2015 and 2018). The interest and principal payments were due on December 15, 2014.

Last month, Caesars Entertainment said CEOC would not pay the $225 million in interest on the secured notes citing the reason that an indenture provided a 30-day grace period for the interest payments before an event of default could happen.

According to ISDA, a panel of three independent third-party professionals including academics or legal experts in the derivatives market will conduct an arbitration style review and decide on the status of the swaps. ISDA said the panel’s decision will be binding on all market participants.

Caesars’ operating unit chapter 11 bankruptcy

Apollo Global Management and TPG Capital own Caesars Entertainment. Its operating unit, CEOC is scheduled to file for chapter 11 bankruptcy later this month.

Early in December, Elliot Management through UMB Bank filed a lawsuit against Caesar Entertainment in an effort to seek an earlier chapter 11 bankruptcy for the casino operator. UMB Bank is a trustee for a set of secured notes almost entirely owned by the activist hedge fund. The lawsuit alleged that Caesars Entertainment is undertaking an “epic and fraudulent scheme” to sell its assets on discount to two related divisions. Elliott called it a $4 billion “outright looting” plan.

Caesars Entertainment announced an all-stock merger agreement with Caesars Acquisition Company (CAQQ) to support its restructuring plan for CEOC. The merger would also create one of the largest gaming and entertainment companies worldwide.