Caesars (CZR) Gets a Breather in Bondholders Suit, Stock Up

Shares of Caesars Entertainment Corporation’s CZR rallied over 9% in yesterday’s trading session, after it was granted a reprieve by U.S. bankruptcy Judge A. Benjamin Goldgar pertaining to a few bondholders’ lawsuits.

What’s the Fuss About?

Caesars has been accorded a temporary injunction, thereby putting the bondholder suits against the company on hold until Aug 29.

Notably, the charges have been leveled by junior bondholders who want Caesars to pay compensations worth $11.4 billion on behalf of its bankrupt unit, Caesars Entertainment Operating Co. (CEOC). However, the ruling bars bondholders from advancing with the proceedings in New York and Delaware.

Meanwhile, the judge has urged Caesars, the CEOC unit and the creditors to reach a settlement before the injunction expires.

Charges

We note that junior creditors are fighting against Caesars’ claim that it is not compelled to pledge the debt of its CEOC unit, following a series of financing deals and asset transfers.

CAESARS ENTERTN Price

CAESARS ENTERTN Price | CAESARS ENTERTN Quote

Notably, in Jan 2015, the CEOC unit had voluntarily filed for reorganization under Chapter 11 of the United States Bankruptcy Code. Per the plan, CEOC would be converted into a real estate investment trust (REIT) which will be divided into two companies. One of the companies will own the casinos and hotels while the other one will rent and manage them.

However, junior creditors have refused to support the reorganization plan. Though the company deems that the restructuring plan would help in creating a sustainable capital structure for CEOC, creditors claim that the CEOC restructuring will not be able to meet their demands of $11.4 billion in damages.

Notably, Caesars (formerly known as Harrah’s Entertainment) was taken private in 2008 by private equity firms Apollo Global Management and TPG Capital in a leveraged buyout worth around $30 billion. However, it launched an initial public offering in 2012 and began trading again.

The junior creditors have also accused the private equity owners of inappropriately transferring assets to the parent company and moving debt to the CEOC unit.

Bottom Line

Notably, Caesars has long denied the accusations and insists that the asset transfers and financing deals in question were apt and essential for the reorganization of CEOC.

With the chances of Caesars obtaining another injunctive relief being bleak, it’s time that the company reaches out a settlement with its creditors. This is because, if the courts rule in favor of the bondholders, Caesars would ultimately be forced to join its operating unit in bankruptcy as it does not have the financial strength to cough up $11.4 billion in debts.

Zacks Rank & Stocks to Consider

Caesars currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Isle of Capri Casinos, Inc. ISLE, Monarch Casino & Resort Inc. MCRI and Ubisoft Entertainment SA UBSFY. All the three stocks carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
MONARCH CASINO (MCRI): Free Stock Analysis Report
 
UBISOFT ENTERTN (UBSFY): Free Stock Analysis Report
 
ISLE OF CAPRI (ISLE): Free Stock Analysis Report
 
CAESARS ENTERTN (CZR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research