Caesars Bankruptcy Reorganization Plan Dealt With Potentially Fatal Blow

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A federal judge’s recent ruling could stop Caesars Entertainment Corp.’s plans for bankruptcy organization dead in their tracks.

According to a January 19 Bloomberg article, U.S. District Judge Shira Scheindlin ruled that Caesars violated federal laws by rearranging its assets and refinancing its debts in an alleged attempt to protect itself from lower-ranking creditors.

The ruling stemmed from a lawsuit filed by noteholders against Caesars. In the lawsuit, Caesars’ noteholders allege that the company transferred some of its more valuable properties away from itself in August, in addition to removing guarantees for its creditors. As a result, Scheindlin said the company’s actions violated the Trust Indenture Act of 1939 and amounted to “an impermissible out-of-court restructuring.”

However, Scheindlin’s ruling didn’t completely throw out Caesars’ Chapter 11 bankruptcy petition, which it filed on January 15. The ruling found that the noteholders’ lawsuit was flawed, as it didn’t account for the fact that some noteholders had voted in favor of the August transfers. The plaintiffs now have until January 29 to revise their complaint.

If the company is able to overcome the ruling, it certainly wouldn’t be alone in filing bankruptcy. Of the 1,071,932 bankruptcies filed throughout 2013, 8,980 were Chapter 11 bankruptcy reorganizations similar to the bankruptcy petition Caesars filed.

According to Bloomberg, Caesars still plans to follow through with its plan for bankruptcy reorganization despite Scheindlin’s potentially debilitating ruling.

“Given the size of the claims at issue and our strong defenses, we do not expect the ruling to impact the planned reorganization,” Stephen Cohen, a spokesman for Caesars, said in a statement.

Currently, the bankruptcy petition, along with a separate petition filed by the company’s creditors that would push it into involuntary bankruptcy, are both being essentially frozen until a judge determines which court will preside over the casino giant’s debt restructuring plan.

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