February 3, 2015
Judge Gross Issues Venue Opinion in Caesars Bankruptcy - Holds Cases Shall Proceed in the Northern District of Illinois
By Evan T. Miller
On February 2, 2015, Judge Kevin Gross issued an Opinion re Determination Pursuant to Federal Rule of Bankruptcy Procedure 1014(b) as to the District in Which the Debtor’s Bankruptcy Cases Shall Proceed in In re Caesars Entertainment Operating Company, Inc., Case. No. 15-10047 (KG). The opinion, based on the Court’s oral ruling at a hearing held on January 28, 2015, details the basis for Court’s determination that Caesars Entertainment Operating Company, Inc.’s (“Debtor”) bankruptcy proceedings should proceed in the Bankruptcy Court for the Northern District of Illinois (the “Illinois Court”).
The Debtor is the main operating subsidiary of Caesars Entertainment Corporation (“CEC”, and together with the Debtor and other of its affiliates, “Caesars”). Following a leveraged buyout in 2008 (the “2008 LBO”), Caesars became unable to service its debt load and address other capital deficiencies. In the years leading up to the bankruptcy filing, Caesars engaged in a series of allegedly controversial transactions, ultimately resulting in asset “sales” from the Debtor to CEC or a non-Debtor affiliate, ostensibly to extend the Debtor’s liquidity runway. However, the Debtor remained overleveraged and prepared for a consensual “pre-packaged” bankruptcy filing which resulted in the public execution of the Restructuring Support and Forbearance Agreement (the “RSA”) in December 2014. The RSA provided, in pertinent part, that CEC would contribute $1.5 billion in return for releases of CEC, provide a 100% recovery for holders of first lien bank debt (the “FLBs”), a 92% recovery for the holders of first lien notes (the “FLNs”), and 10-12% recovery for more junior creditors (according to the creditors that initiated the Involuntary Case (as defined below), the “Petitioning Creditors”). The RSA required the Debtor to file a voluntary bankruptcy petition after January 15, 2015 but before January 20, 2015.
On January 12, 2015, the Petitioning Creditors, holders of outstanding second lien notes, initiated an involuntary bankruptcy proceeding (the “Involuntary Case”) against the Debtor in the Bankruptcy Court for the District of Delaware (the “Delaware Court’). On January 15, 2015, however, the Debtor and 172 of its direct or indirect subsidiaries (the “Illinois Debtors”) filed voluntary Chapter 11 petitions (the “Voluntary Case”, and together with the Involuntary Case, the “Cases”) in the Illinois Court. The Petitioning Creditors filed a venue motion (the “Venue Motion”) pursuant to Bankruptcy Rule 1014(b) requesting that the Cases proceed before the Delaware Court.
At the Venue Motion hearing, the record established that, inter alia, that: 1) over 80% of the FLNs and 15% of the FLBs had signed onto the RSA, binding only the FLNs to the RSA’s terms; 2) the Debtor’s CEO and CRO were not consulted regarding the selection of venue for the Voluntary Case, but they understood that the main reasons were Chicago’s centrality and Seventh Circuit law regarding executory contracts and third-party releases; 3) the Debtor’s management, creditors and professionals are spread throughout the country; and 4) the
On February 2, 2015, Judge Kevin Gross issued an Opinion re Determination Pursuant to Federal Rule of Bankruptcy Procedure 1014(b) as to the District in Which the Debtor’s Bankruptcy Cases Shall Proceed in In re Caesars Entertainment Operating Company, Inc., Case. No. 15-10047 (KG). The opinion, based on the Court’s oral ruling at a hearing held on January 28, 2015, details the basis for Court’s determination that Caesars Entertainment Operating Company, Inc.’s (“Debtor”) bankruptcy proceedings should proceed in the Bankruptcy Court for the Northern District of Illinois (the “Illinois Court”).
The Debtor is the main operating subsidiary of Caesars Entertainment Corporation (“CEC”, and together with the Debtor and other of its affiliates, “Caesars”). Following a leveraged buyout in 2008 (the “2008 LBO”), Caesars became unable to service its debt load and address other capital deficiencies. In the years leading up to the bankruptcy filing, Caesars engaged in a series of allegedly controversial transactions, ultimately resulting in asset “sales” from the Debtor to CEC or a non-Debtor affiliate, ostensibly to extend the Debtor’s liquidity runway. However, the Debtor remained overleveraged and prepared for a consensual “pre-packaged” bankruptcy filing which resulted in the public execution of the Restructuring Support and Forbearance Agreement (the “RSA”) in December 2014. The RSA provided, in pertinent part, that CEC would contribute $1.5 billion in return for releases of CEC, provide a 100% recovery for holders of first lien bank debt (the “FLBs”), a 92% recovery for the holders of first lien notes (the “FLNs”), and 10-12% recovery for more junior creditors (according to the creditors that initiated the Involuntary Case (as defined below), the “Petitioning Creditors”). The RSA required the Debtor to file a voluntary bankruptcy petition after January 15, 2015 but before January 20, 2015.
On January 12, 2015, the Petitioning Creditors, holders of outstanding second lien notes, initiated an involuntary bankruptcy proceeding (the “Involuntary Case”) against the Debtor in the Bankruptcy Court for the District of Delaware (the “Delaware Court’). On January 15, 2015, however, the Debtor and 172 of its direct or indirect subsidiaries (the “Illinois Debtors”) filed voluntary Chapter 11 petitions (the “Voluntary Case”, and together with the Involuntary Case, the “Cases”) in the Illinois Court. The Petitioning Creditors filed a venue motion (the “Venue Motion”) pursuant to Bankruptcy Rule 1014(b) requesting that the Cases proceed before the Delaware Court.
At the Venue Motion hearing, the record established that, inter alia, that: 1) over 80% of the FLNs and 15% of the FLBs had signed onto the RSA, binding only the FLNs to the RSA’s terms; 2) the Debtor’s CEO and CRO were not consulted regarding the selection of venue for the Voluntary Case, but they understood that the main reasons were Chicago’s centrality and Seventh Circuit law regarding executory contracts and third-party releases; 3) the Debtor’s management, creditors and professionals are spread throughout the country; and 4) the