Caesars Entertainment (CZR) Stock Pummeled After Judge Removes Lawsuit Protection

Shares of Caesars Entertainment Corporation (CZR) were trading down -2.13 or -28.29 percent to $5.40 in Monday’s premarket after news broke Friday after the market close that a judge had ruled the company must face lawsuits from the Caesars bondholders. Caesars Entertainment stock closed at $7.53, down -0.03 or -0.40 percent in Friday’s regular trading session.

Stock Analysis

Paradise, Nevada based Caesars Entertainment Corporation was originally founded as Harrah’s Inc. by Bill Harrah in 1937.
The company changed its name to Harrah’s Entertainment in 1995, changing it to Caesars Entertainment Corp. in 2010. The company is a U.S. gaming corporation that operates more than 50 casinos and hotels, as well as seven golf courses under a variety of brands such as Caesars, Horseshoe Palace, Total Rewards, World Series of Poker and London Clubs International to name only a few.

The company is the fourth largest gaming company in the world and is majority owned by a group of private equity firms led by Apollo Global Management and TPG Capital.
Caesars Entertainment (CZR) Stock Pummeled After Judge Removes Lawsuit Protection
Image by Mariamichelle / Pixabay
The company’s largest operating unit filed for bankruptcy protection in January of 2015.

In Caesars Entertainment Operating Company’s $18 billion bankruptcy proceedings on Friday, U.S. bankruptcy judge Benjamin Goldgar lifted an injunction preventing a group of hedge funds that include Oaktree Capital and Appaloosa Management, from suing the company for as much as $11.4 billion in claims.

The group of hedge funds has a large position in Caesar’s second lien or junior bonds and accused the company of “brazen corporate looting” through asset stripping and other financial dealings after the acquisition of the group in 2008 for $31 billion. The judge had blocked creditor’s claims twice to give time for both sides to cut $10 billion of the $18 billion debt incurred by Caesar’s operating company or CEOC.

With the lifting of the injunction, the creditor group is now free to litigate that Caesar’s parent company had improperly terminated its bond guarantees. Judge Goldgar criticized private equity firms, Apollo Global Management and TPG, who are major stockholders in the company, that their settlement proposal was “disturbing” and that their claims about the collapse in January of 2015 were fiction.

Judge Goldgar read his opinion from the bench, saying that, “Apollo and TPG’s contribution consists of the reduction in the value of their ownership interest in CEC from $4 billion to $2 billion under the plan. But the evidence showed that the $4 billion valuation is a fiction.” Adding that, “Particularly disturbing is that” neither company “is making any financial contribution to the reorganization, although the proposed plan would release all the claims against them”.

Caesars, TPG and Apollo have denied the claims; however an independent court appointed examiner found that they could be liable for as much as $5.1 billion in claims. Caesars offered to contribute $4 billion into the CEOC reorganization in exchange of a release from the claims. The decision puts the CEOC reorganization at risk and both Caesars and CEOC were disappointed with the ruling. Nevertheless, CEOC lawyers say they plan to appeal the decision.

Other News About CZR

Caesars Entertainment, Caesars Entertainment Operating Co. Announce Restructuring Support Agreement with First Lien Bank Lenders

First lien holders represent approximately $12 billion of CEOC’s capital structure.

Caesars Entertainment Corporation and Caesars Acquisition Company Announce Amended and Restated Merger Agreement

The companies amended their merger agreement early last month.

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Published on Aug 29, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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