March 12, 2015 / 9:37 PM / 3 years ago

UPDATE 1-Judge orders examiner in Caesars' affiliate bankruptcy

(New throughout, adds details from court filing, background)

By Tom Hals and Nick Brown

March 12 (Reuters) - A U.S. bankruptcy judge on Thursday ordered an independent examiner to investigate transactions by the operating unit of Caesars Entertainment Corp, which filed for Chapter 11 this year.

U.S. Bankruptcy Judge Benjamin Goldgar directed the examiner to investigate “any apparent self-dealing or conflicts of interest involving the debtors or their affiliates.”

Creditors have alleged that the operating unit is unable to pay its debts because the parent company looted it for the benefit of its controlling private equity backers, Apollo Global Management and TPG Capital Management.

Court papers said the examiner, to be appointed by the U.S. Trustee, will be tasked with analyzing the propriety of a number of intercompany deals that are at the heart of the bankruptcy of Caesars Entertainment Operating Co, or CEOC.

As the operating company struggled to overhaul its operations prior to filing for bankruptcy, it transferred a number of its most valuable properties and casinos to affiliates of the parent company.

Creditors have alleged the moves were illegal efforts by the parent company to put the assets beyond the reach of creditors.

The parent company has said the assets were transferred for a fair value, which is likely to be a key part of the examiner’s report.

Among the disputed transactions are the transfer of CEOC’s interest in online gaming businesses in 2011; the 2013 transfer of the Octavius Tower in Las Vegas; and the 2014 transfers of Las Vegas casinos The Cromwell and The Quad, Bally’s Las Vegas and Harrah’s New Orleans.

The operating unit has acknowledged the need for an examiner, but sought a narrower scope than did the company’s creditors. CEOC said an examiner with unbridled scope could cost millions of dollars.

Last month, the operating unit in court papers charted recent bankruptcies in which examiners were appointed, noting that most have ultimately exceeded their budgets.

In the bankruptcy of Residential Capital, examiner Arthur Gonzalez was projected to cost $36 million over six months. Instead the former U.S. Bankruptcy judge spent 10 months filing a report that cost about $90 million, CEOC showed.

The examiner in Lehman Brothers’ 2008 bankruptcy cost $100 million, up from a projected cost of only $23 million, according to the chart.

The case is Caesars Entertainment Operating Co., U.S. Bankruptcy Court, Northern District of Illinois, No. 15-1145 (Reporting by Tom Hals in Wilmington, Delaware; Editing by Steve Orlofsky and David Gregorio)

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