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Gaming regulators scold Caesars, calling company’s bankruptcy an embarrassment

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AP Photo/John Locher

A man takes pictures of Caesars Palace in Las Vegas, Jan. 12, 2015.

Thu, Mar 26, 2015 (7:15 p.m.)

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Tony Alamo

To get a sense of just how complicated the bankruptcy of Caesars Entertainment’s main operating division is, picture a Chicago courtroom filled with 200 lawyers, all working on the case.

That’s a real situation Caesars faced recently, general counsel Tim Donovan told gaming regulators on Thursday. Donovan said Caesars was paying for many of those lawyers, who represent the company and creditors.

Since the operating division sought bankruptcy protection in mid-January, hoping to eliminate about $10 billion in debt, the case has mostly played out in Chicago, where it was filed.

But Caesars executives had to appear before the Nevada Gaming Commission for approval of some routine matters this week, and commissioners used it as an opportunity to get a detailed look into the bankruptcy.

So for around two hours, Donovan and his colleague, Caesars Chief Financial Officer Eric Hession, presented information and answered questions related to the financial restructuring of the operating division, Caesars Entertainment Operating Co.

The picture painted by Hession and Donovan was one of a struggling company, victimized by the recession, fighting through byzantine legal proceedings with the hope of eventually emerging as a stronger entity. And while commissioners were somewhat receptive to the company’s woes, they had harsh words for the executives, suggesting that Caesars would not get off easy in future regulatory meetings.

Hession said the 2008 leveraged buyout that the company went through, which saddled it with billions of dollars in debt, was “spectacularly poorly timed.” Caesars could have been able to pay off the debt, were it not for the financial downturn that plagued the country shortly afterward.

As the recession battered the the casino industry, Hession said the company tried a number of financial maneuvers to keep itself sustainable, but eventually realized it could not proceed without restructuring the operating division.

That restructuring is highly involved on its own, but it’s further complicated by a group of lawsuits challenging some of Caesars’ business transactions leading up to the bankruptcy.

According to Donovan, “almost nobody is happy” in the bankruptcy proceedings.

“It’s not at all a pleasant experience,” he said.

Dozens of Caesars’ retired employees have been made particularly unhappy. As revealed in recent media reports, 63 former employees stopped receiving payments because their retirement plans are considered unsecured debt.

Donovan told the commission that, while the overwhelming majority of its retirement plans were not affected by the bankruptcy case, some supplemental plans from past acquisitions had fallen into a different category. They’re not benefits offered to the general employee population and not benefits offered to unionized employees, he said, but are rather “unsecured contractual obligations.”

The company can’t legally continue making payments under those plans, and it won’t be able to get a judge to change that, so its hands are tied, according to Donovan.

Commission Chairman Tony Alamo called the bankruptcy case an embarrassment to Caesars and the state of Nevada. He was especially concerned about the retirement plans, and expressed a desire to do something about it, but he acknowledged that the commission itself couldn’t get in the way of the bankruptcy case.

Similarly, commissioner John Moran, who was skeptical that Caesars continued to pay bonuses to executives while heading toward bankruptcy, was not pleased about the restructuring.

“It’s one of those kinds of sandwiches that nobody wants to take a bite out of,” he said. “It’s very distasteful, and it’s very embarrassing for the corporation to have to go through this.”

Commissioner Randolph Townsend also was frustrated by Caesars’ business choices.

“Some of the decisions this company has made over time are completely perplexing. Can we not build any more Ferris wheels for a while?” he said, referring to the company's High Roller observation wheel on the Las Vegas Strip.

Despite the commissioners’ criticism, there was little they could do this week other than weigh in verbally. However, Alamo noted that they would get “a second bite of this apple” later, when elements of the restructuring will likely require regulatory approval.

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