Caesars could face $5.1bn damages says examiner

nkruptcy investigator says Caesars Entertainment could be liable for damages of up to $5.1bn as a result of certain deals it undertook.

Examiner Richard J. Davis has been considering whether the casino operator and its private equity owners Apollo Global Management and TPG harmed Caesars Entertainment Operating Co (CEOC) and its creditors by moving CEOC assets away from the subsidiary before its bankruptcy filing last year.

“The simple answer to this question is ‘yes,’" said Davis in his report, which has been made public following a year-long investigation.

He stated that potential legal claims "of varying strength" arise from certain transactions, including those relating to breaches of fiduciary duty by CEOC directors and officers, and the Caesars parent company.

He added that CEOC may also have possible claims "of varying strength" against Apollo, TPG and certain Caesars directors for aiding and abetting breach of fiduciary duty.

Davis said the claims, which don’t include criminal or common law fraud, could lead to damages of between $3.6bn and $5.1bn.

His findings aren't legally binding but could be used as a guide for creditors considering legal action.

CEOC sought chapter 11 bankruptcy protection in January 2015 with $18.4bn worth of debt.

Following the filing, a Chicago judge directed Davis to investigate the asset shuffling, which junior creditors believe removed valuable CEOC assets for the benefit of Caesars.

Caesars Entertainment Corporation said it believes the evidence analysed by Davis "shows that each of the challenged transactions was undertaken to strengthen CEOC and provide it with the liquidity and resources required to sustain it and give it time to recover from unprecedented market challenges", adding that such deals provided "immense and indisputable benefit" to CEOC and its creditors.

"This is ultimately a dispute about valuation, process and whether CEOC was solvent at the time of each of the transactions," it continued.

"We disagree with the Examiner's subjective conclusions and opinions on these financial issues.

"Indeed, the Examiner's conclusions are completely inconsistent with the careful analysis and considered opinions of the independent and highly regarded investment banks and law firms who advised on these processes."

Despite these disagreements, Caesars Entertainment has agreed to contribute "substantial and appropriate" value to creditors as part of the plan of reorganization currently on file.

CEOC said that the conclusion of the investigation was an "important milestone in CEOC's reorganization process".

It added: "With the Examiner's work now complete, CEOC is focused on a path towards emergence, anticipates filing an updated plan of reorganization shortly and will be seeking the scheduling of disclosure statement and confirmation hearings by the Court.

"As part of this process, CEOC continues to negotiate with stakeholders and has availed itself of a mediator to aid in building further consensus."