Within the last ten minutes, an adversary complaint has been filed with the Delaware bankruptcy court by a group calling themselves the Ad Hoc Committee of First Lien Bank Lenders. The complaint alleges that it is filed “against debtor Caesars Entertainment Operating Company, Inc. and its non-debtor parent, Caesars Entertainment Corporation, to enjoin and remedy their improper attempts to buy votes from First Lien Bank Lenders in favor of a yet-to-be-filed plan of reorganization.”
The allegations made in the complaint continue as follows:
The Defendants’ purchase of such votes is being perpetrated through a pre-petition consent solicitation that was extended, post-petition, to January 26, 2015 (the “Improper Post-Petition Solicitation”), which Plaintiff expects Defendants will extend yet again.
. . .
The Improper Post-Petition Solicitation provides that in exchange for (a) the payment of a $150 million “consent fee”, (b) the opportunity to purchase a pro rata share of $150 million of convertible notes to be issued by CEC and (c) receiving a portion of a cash sweep from the Debtor (collectively, the “Consent Payments”), consenting First Lien Bank Lenders must become party to a restructuring support agreement (the “RSA”) with the Defendants, which, in turn, obligates such lender to (x) vote in favor of a yet-to-be-filed plan of reorganization implementing the Debtor’s previously-announced REIT restructuring, (y) vote to amend and strip the current CEC guaranty of the First Lien Loans and (z) provide the Defendants, their sponsors and their respective directors and officers broad releases from any and all claims and causes of action, including with respect to CEOC’s fraudulent transfers and its directors’ breaches of fiduciary duty that have been detailed in myriad recent litigations.
By pursuing the Improper Post-Petition Solicitation and extending the consent solicitation period beyond the petition date, Defendants are attempting to subvert the plan and disclosure statement process in violation of section 1125(b) of the Bankruptcy Code, resulting in direct and irreparable harm to Plaintiff and all other non-consenting First Lien Bank Lenders, as well as the chapter 11 estate generally. Indeed, given the heavy media coverage this chapter 11 case and the Illinois Proceedings receive, Defendants knew or should have known that word of the solicitation extension would immediately be widely disseminated by the press. Defendants, each represented by very sophisticated counsel, no doubt understand that soliciting plan votes absent a court-approved disclosure statement is contrary to law.
Defendants’ actions violate the bankruptcy laws and, by this Complaint, Plaintiff seeks declaratory and injunctive relief to immediately halt Defendants’ unlawful behavior, especially given the high likelihood that Defendants will continue to extend the consent solicitation period. Defendants’ actions can and will continue to cause harm to Plaintiff’s members, other non-consenting First Lien Bank Lenders and the Debtor’s estate absent the injunctive relief requested by Plaintiff in this Complaint. Absent such relief, Defendants could succeed in deceiving a majority of First Lien Bank Lenders into agreeing to the RSA absent adequate information required by a disclosure statement, thereby resulting in the stripping of the CEC guaranty of the First Lien Loans and releases of extremely valuable claims against Defendants and their directors and officers.
According to a Verified Statement Pursuant to Rule 2019 of the Federal Rules of Bankruptcy Procedure filed earlier today by the group, the 18 members of the Ad Hoc Committee of First Lien Bank Lenders collectively hold “(i) First Lien Loans in the aggregate principal amount of approximately $2.88 billion, plus accrued interest and other obligations, which amounts are secured by first priority liens and security interests in the Debtor’s assets as set forth in the Credit Agreement and certain other documents related thereto; (ii) First Lien Bonds in the aggregate principal amount of approximately $283.6 million, plus accrued interest and other obligations, which amounts are secured by first priority liens and security interests in the Debtor’s assets as set forth in the First Lien Indentures and certain documents related thereto and (iii) Unsecured Debt in the aggregate principal amount of approximately $87.6 million, plus accrued interest and other obligations. As of the date of this Verified Statement, the individual members of the Ad Hoc Committee do not hold claims or manage accounts that hold claims against the Debtor arising from the Second Lien Bonds.”
Note: This article was initially published on Commercial Bankruptcy Investor.