The stock price of Caesars Entertainment plummeted more than 40% to $4.76 per share after a federal court issued a ruling allowing creditor lawsuits claiming as much as $11 billion.
United States Bankruptcy Judge Benjamin Goldgar rejected the request of Caesars Entertainment to put the lawsuits filed by its creditors on hold to be able to fix its financial situation after taking a huge amount of debt in a $30.7 billion leveraged buyout.
Caesars Entertainment’s operating unit is still in bankruptcy, and recently signed a restructuring agreement with a group of second-lien noteholders. The casino giant previously stated the possibility of joining its operating unit in bankruptcy if the court rejects its petition.
According to Judge Goldgar, the casino giant’s operating unit is protected from litigations, but Caesars Entertainment should face the lawsuits. The creditors of the casino giant or trustee representing them filed at least four lawsuits alleging that Caesars Entertainment is responsible for guaranteeing the notes issued by its operating unit.
Caesars Entertainment would be compelled to cover the debts of its operating unit if the creditors prevail in one of the lawsuits. The casino giant may end up filing for bankruptcy as it would not have enough money to pay a multi-billion dollar judgement, according to the testimony of a financial adviser for the casino giant’s operating unit.
The lower-priority creditors accused Caesars Entertainment of creating a “good Caesars” with valuable assets and lower debt and a “bad Caesars,” which would file for bankruptcy to wipe out debts. The casino giant denied the allegations and argued that its actions were legitimate and necessary.
Caesars Entertainment will continue to challenge the lawsuits
“We believe our defenses in the New York litigation are strong, and will continue to contest those cases vigorously. The bankruptcy court’s ruling was a technical interpretation of bankruptcy law and did not address in any way the merits of the New York litigation,” according to Stephen Cohen, a spokesman for Caesars Entertainment.
Eric Gordon, a law professor at the University of Michigan, commented, “The company lost a negotiating chip the stay away would have given it. They will try to chug forward with a plan. That’s going to be a very rough road full of potholes because so far they’ve not been able to get the creditors together.”