Caesars Entertainment Operating Co. opened a multiday trial to determine the exact date it went bankrupt, a question that could threaten a $468 million claim senior lenders have made on the casino company’s cash and affect talks with lower-ranking creditors.
The dispute might not be as important to the judge overseeing the $20 billion bankruptcy in Chicago as it is to the company, whose properties include Horseshoe Baltimore Casino.
U.S. Bankruptcy Judge A. Benjamin Goldgar said Monday that he’s in no hurry to rule on whether the Chapter 11 case officially began on Jan. 12, when creditors filed to force Caesars into bankruptcy, or Jan. 15, when the company filed a voluntary petition.
“I don’t think this is a matter I will decide 24 hours after” the hearing ends, Goldgar said before the first of more than a dozen witnesses began testifying. A fight over the cancellation of an employee pension is more of a priority to him, the judge said.
David Zott, a lawyer for the bankrupt operating unit of Las Vegas-based Caesars Entertainment Corp., disagreed.
The date “has taken on real significance in this case,” he told the judge. Zott said it is “far, far more important” than the dispute with National Retirement Fund, which is seeking to force the parent to start making payments of $6 million a quarter for 20 years. The fund claims the pension is underfunded and should be canceled, with Caesars forced to make up the shortfall.
The dispute over the start of the bankruptcy involves a technical point of law. Bondholders filed a petition on Jan. 12 in Wilmington, Delaware, seeking to force the company into bankruptcy. The company brought its own bankruptcy case three days later in Chicago.
The earlier date would fall within a legal time period for the lower-ranking creditors to challenge a cash claim by senior lenders, who are allied with Caesars and support its reorganization plan. The later date would protect the lender claim to the $468 million.
Goldgar voiced his priorities during a debate over the first witness of the day. Creditors wanted to delay showing the video-taped deposition of Michael Duffy, a Hilton Worldwide Inc. executive, so he could come to court in about a month and testify in person.
Goldgar agreed, saying he didn’t think he needed to rule immediately on the question of which date to use for the official start of the bankruptcy. After Zott objected to a delay, Duffy’s testimony was played in the courtroom.
Duffy said the bankrupt company hadn’t paid into a pension fund for former Hilton casino employees who now worked for Caesars. Hilton, which also bears responsibility for the pension, has sued Caesars trying to force the company to contribute.
A group of bondholders, including affiliates of Tennenbaum Capital Partners LLC, Oaktree Capital Management LP and Appaloosa Partners Inc., is trying to show that Caesars was not paying its bills before filing for bankruptcy, which would justify their decision to file the involuntary case against the company.
In mid-December, Caesars missed an interest payment to bondholders. The creditors say that shows the involuntary petition was legitimate. Caesars argues that it had a 30-day grace period to make the payment, and could wait until Jan. 15 to file.
On Tuesday, Dale Ruby of Oaktree testified briefly to explain the investment manager’s operations and to verify the authenticity of bond documents related to Caesars. Oaktree manages about $103 billion, of which $27 billion is considered distressed investment, Ruby said.
The case is In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois.