NEW YORK (The Deal) -- Caesars Entertainment's (CZR) removal of its guarantee on the bonds issued by its operating subsidiary will lead holders of them to mobilize and fight for their rights, according to sources.
In an announcement on May 6, the Las Vegas casino giant said it has removed its guarantee on bonds issued by the unit, Caesars Entertainment Operating Co. by selling 5% of CEOC's equity to unnamed institutional investors. Removing the guarantee takes much-needed coverage away from bondholders at liquidity-strapped CEOC, which is widely believed to be headed toward a restructuring.
One holder of CEOC second-lien bonds who asked not to be named said he hadn't been interested in joining a second-lien bondholder group in the past, but that now, he would consider it. "I think everybody's going to challenge this transaction," the bondholder said.
Two CEOC bondholder groups have already formed to challenge a group of asset sales from CEOC to Caesars Growth Partners. The second-lien bondholder group includes hedge funds Canyon Capital Advisors, Oaktree Capital Management and Appaloosa Management and is being advised by Jones Day's Bruce Bennett.
The first-lien group is being advised by Kenneth Eckstein and Thomas Moers Mayer of Kramer Levin Naftalis & Frankel, The Deal has learned. Holders of CEOC first-lien bonds include Goldman Sachs Asset Management.
The second-lien bondholder noted that CEOC's second-lien bonds traded down after the announcement on Tuesday, then traded higher Wednesday morning. By late Wednesday afternoon, that held for at least CEOC's 10% second-lien notes due Dec. 15, 2018, which traded between 44.3 and 45.79 cents on the dollar on Tuesday, rose as high as 48 Wednesday morning, and settled at 46.75 Wednesday afternoon - a curious resilience given Caesars' removal of a substantial protection from those bondholders.