BANKRUPTCY PLAYS

[sludgehound]

Caesars in 79-yr-old bk Trust Indenture Act of 1939
Caesars Entertainment Corp. is lobbying to roll back a Depression-era creditor-protection law that could complicate the casino giant's financial restructuring, according to people familiar with the matter.
The Las Vegas company and its owner, Apollo Global Management LLC , have been working to support legislation that would amend the Trust Indenture Act of 1939, the people said. Some lawmakers, including Democratic Sen. Harry Reid of Nevada , have pushed to include the measure in a sweeping spending bill that Congress must pass by Friday to avoid a government shutdown, they said.
An amendment to the law could gut lawsuits against Caesars brought by bondholders of the company's bankrupt operating division. The bondholders have filed a lawsuit arguing that transactions that took the Caesars parent company off the hook to guarantee their debt violated the Trust Indenture Act. The law protects creditors against transactions that impair their principal or interest payments.
Lawmakers weighed including the provision in a $305 billion highway bill passed last week but left ultimately left it out, people familiar with the matter said. As with that plan, the current proposal may not succeed. Caesars has been working with law firm Brownstein Hyatt Farber Schreck LLP on the lobbying effort, according to people familiar with the matter.
The bondholder litigation threatens to drag the Caesars parent company into chapter 11 protection alongside its bankrupt operating company, according to the court testimony of a Caesars financial adviser. Such an outcome could wipe out the investments of Caesars shareholders such as Apollo and TPG, which led a leveraged buyout of the company in 2008.
Limiting the Trust Indenture Act would mark a setback to creditors' recent efforts to use the law to challenge debt restructurings by Caesars and for-profit college operator Education Management Corp. completed outside of bankruptcy court.
In June, a federal judge ruled that Education Management's out-of-court debt restructuring violated the rights of bondholders that didn't participate in the deal. The decision forced the company to continue making interest payments on bonds held by hedge fund Marblegate Asset Management LLC .
"It is a great concern to us that a 79-year-old law would be repealed retroactively, without legislative review or public debate, by the backroom lobbying efforts of one or two special-interest groups whose sole aim is to overturn several federal district court decisions that were not in their favor," Marblegate Managing Partner Andrew Milgram said in an emailed statement.
Lawyers who represent struggling companies say the expanded bondholder protections could give holdout creditors more leverage in fights with companies trying to restructure debt out of court, making such deals more difficult to accomplish.
"This will preclude the ability of companies to work out debt out of court and will cause more bankruptcies, with more cost, job loss and inefficiency," said Kenneth Klee , professor emeritus at the University of California, Los Angeles , law school. Mr. Klee has served as a consultant to Brownstein Hyatt on matters related to the Trust Indenture Act, he said.
Bondholders of the Caesars unit, such as MeehanCombs LP , are arguing in Manhattan District Court that the company violated the Trust Indenture Act by improperly removing the pledges the Caesars parent company made to cover the unit's debt before the bankruptcy filing. A trustee for bondholders including Appaloosa Management LP and Oaktree Capital Group LLC is pursuing a similar legal argument.
The lawsuits stem from Caesars's yearslong attempt to stave off bankruptcy, much of it engineered by Apollo, a private-equity firm known for its savvy in navigating credit markets.
In various suits, bondholders of the bankrupt Caesars unit also have alleged that the company sold assets to other Caesars affiliates to move them out of creditors' reach. Caesars has said those claims are without merit.

(END) Dow Jones Newswires
12-06-15 1838ET
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