Inside Gaming: Caesars Bond Hits High; SEC Penalizes IGT; Ohio Casino Challenge Dismissed
In this week's installment of Inside Gaming, some good news for Caesars Entertainment Corp. (finally) during its ongoing battles with creditors regarding the bankruptcy filing of its largest operating division, IGT agrees to pay a hefty penalty imposed by the SEC, and a court ruling in Ohio halts a challenge to the constitutionality of the state's casinos.
Caesars Bond Hits Three-Year High Amid Bankruptcy Battles
For the first time in a long while, there was positive news amid Caesars Entertainment Corp.'s ongoing efforts to manage the Chapter 11 bankruptcy filing of its largest operating division, Caesars Entertainment Operating Company, and resulting lawsuits from numerous creditors.
Earlier this week Bloomberg Markets reported that a Caesars bond "rose to the highest level in three years," a result of "significant progress" having been made by the company "toward an agreement that would lift its operating unit out of bankruptcy."
According to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority, Caesars' $760.4 million worth of 10 percent second-lien notes maturing 2018 increased to the point of trading 62.25 cents on the dollar, the highest level for the notes since April 2013.
In statement issued Monday, Caesars "said discussions are continuing with major creditors and the company is optimistic about reaching an agreement" that would enable them to end their court battles.
In the spring of 2014, the parent company restructured by separating into three separate divisions, a move then characterized as part of an effort to avoid declaring bankruptcy while managing its industry-leading $18 billion-plus debt.
The largest and most debt-ridden of the three new divisions — Caesars Entertainment Operating Co. — includes more than 40 properties such as Caesars Palace, Caesars Atlantic City, and others. (The other two divisions are Caesars Entertainment Resorts Properties and Caesars Growth Properties.)
But in January 2015 came the Chapter 11 bankruptcy filing for that largest division, the CEOC, and subsequently several creditors filed lawsuits claiming the earlier restructuring had been unfairly designed to avoid paying debts they were owed.
In March 2015 Caesars received a scolding from the Nevada Gaming Commission with the NGC chairman characterizing the bankruptcy case as "an embarrassment to Caesars and the state of Nevada." Then in June 2015 efforts by Caesars to stop the lawsuits while details of the bankruptcy filing could be ironed out were nixed by U.S. Bankruptcy Judge Benjamin Goldgar, and the court battles continued. By March of this year a court-ordered examiner's report determined CEC and its private equity backers, Apollo Global Management and TPG Capital, could be responsible for up to $5.1 billion in damages.
Bloomberg Markets explains how the second-lien debt holders — a group including Appaloosa Management — "have been the toughest holdouts in the restructuring talks" since the CEOC's bankruptcy filing. "The creditors have been seeking a higher payout after the Las Vegas-based Caesars originally offered about $4 billion toward the reorganization."
For now, the negotiations continue.
For more on the past, present, and future of Caesars' bankruptcy battles, visit Bloomberg Markets.
IGT Agrees to SEC's Half-Million Dollar Penalty for Whistleblower Firing
As we previewed a week ago, the Global Gaming Expo played out this week in Las Vegas, at which International Game Technology (IGT) was one of the most prominent exhibitors. As the Expo concluded, so, too, did IGT settle another matter by agreeing to pay a $500,000 penalty given them by the United States Securities and Exchange Commission.
The gaming-casino company received the penalty "for firing an employee with several years of positive performance reviews because he reported to senior management and the SEC that the company's financial statements might be distorted," as the SEC explained in its press release announcing IGT's agreement to pay.
The employee had been removed from assignments immediately after having made the report, then fired from the company three months later.
"Strong enforcement of the anti-retaliation protections is critical to the success of the SEC's whisteblower program," explained the Commission. "This whisteblower noticed something that he felt might lead to inaccurate financial reporting and law violations, and he was wrongfully targeted for doing the right thing and reporting it."
While agreeing to pay the fine, IGT neither admits nor denies the charges suggested by the SEC's findings. The company's own internal investigations regarding the employee's allegations "determined its reported financial statements contained no misstatements."
Learn more about the penalty and some additional historical context in the SEC's release.
Judge Dismisses Legal Challenge to Ohio Casinos
For the last five years a legal case between a private company and several Ohio state officials has been playing out in which the federal constitutionality of the state's 2009 amendment to allow casinos has been challenged. Finally this week the case — and the challenge — reached a conclusion after being dismissed by Judge Chris Brown of the Franklin County Court of Common Pleas, reports cleveland.com.
The Akron-based company Ohio Roundtable sued the state Lottery Commission and Casino Commission as well as Governor John Kasich and the state's Tax Commissioner on the grounds that the 2009 amendment was unconstitutional and unfairly let the state decide via regulations and restrictions upon who could be casino operators in the state.
But Judge Brown decided otherwise, concluding that "the State has a legitimate interest in regulating casino gambling." In his ruling, Brown described gambling as "a vice that may be limited, restricted, or banned by the State in its entirety, in order to preserve the public's health and welfare."
The original suit had been brought by 11 different individuals, and had been dismissed by a lower Franklin County court, after which it an appeal was made and the case was taken to the Ohio Supreme Court. There, too, the case was decided not to have any standing, although one of the plaintiffs — Frederick Kinsey — was allowed to pursue his case further in the Franklin County Court of Common Pleas where Judge Brown ruled against it this week.
Speaking about the dismissal of the case, the chair of the Ohio State Bar Association Gaming and Liquor Law Committe John H. Oberle stated the ruling "provides legal certainty to Ohio's four casinos, and substantiates the legal structure of the Ohio casino law approved by voters, the General Assembly, and the Ohio Casino Control Commission if this case is not appealed."
It can be appealed, of course, although no indication has been made as yet whether an appeal is forthcoming.
Read more about how Judge Brown characterizes the state's relationship to gambling and a copy of the entire ruling at cleveland.com.