by Paunie Samreth, and Reshmi Basu
After fighting for nearly two years with management, the CEOC official committee of second lien noteholders has abruptly reversed course and plans to consent to the debtor’s new restructuring proposal, said three sources familiar with the situation. But that doesn’t mean the company has a path out of bankruptcy just yet.
The new RSA proposal, which adds USD 1.6bn of value to the second lien class recovery, has alienated first lien bondholders – those longtime supporters of the company who backed multiple previous iterations of an RSA, the sources continued. The main gripe now percolating through the first lien group is the fact that constituents have to cough up what they perceive as too much value.
Part of the enhanced recovery now earmarked for the second liens will come directly from the first liens, who are expected to kick down at least USD 400m in value. The remaining recovery add-on comes from an equity contribution from sponsors Apollo Global Management and TPG Capital worth roughly USD 954m, and CEC will contribute equity valued at roughly USD 92m.
The company specifically asked for holders of CEOC’s USD 6.3bn first lien notes to forgo the excess cash sweep and USD 5.3bn prepetition lenders to forgo 2.7% of the reorganized company’s equity, both of which are part of the debtors current Chapter 11 plan.
All told, the deal pins recovery value for second lien holders at 65.6%, said two of the sources.
With the clock ticking towards tomorrow’s deadline to accept the plan, first and second lien investors are working the phone to figure out what to do, said the sources.
First lien holders do not want to give up roughly 3.5 points of recovery to give second lien holders an additional 5 points, said the first source familiar. The company reneged on the deal with first lien holders and the first lien group’s gripe back to the company now is “why should we do this,” said the second source familiar.
However, “if you start breaking [the USD 400m] into different parties, it becomes smaller differences on recovery to get there,” said the second source.
Additionally, the second lien group, which has a blocking position, could agree to a smaller recovery and the USD 400m funding gap could instead be something closer to USD 300m, which would be more palatable, he noted.
Nevertheless, “you could see all three parties dig their heels in and have this thing terminated,” said the source. “You have such egos and such animosity here that this is how war gets started,” he said.
CEOC’s USD 3.3bn 10% second lien notes due 2018 traded today at 60.313 to yield 37.973%, up over 4 points from 55.75 prior to yesterday’s newly disclosed plan, according to MarketAxess.
The USD 2bn 11.25% first lien notes due 2017 traded today at 101.75 to yield 8.497% compared to 102 yesterday. The issuer’s USD 3bn 9% first lien notes due 2020 changed hands at 102 to yield 7.44%, up 2 points from yesterday’s print of par, according to MarketAxess. Caesars equity is up 15% today to trade at USD 9.32 per share, after trading up 15% yesterday.
A spokesperson for CEC declined to comment.