PDF Summary:The Caesars Palace Coup, by Max Frumes and Sujeet Indap

The acquisition of Caesars Entertainment through a leveraged buyout sets the stage for The Caesars Palace Coup, by Max Frumes and Sujeet Indap. This book details the bold strategies employed by private equity firms to revitalize the struggling company, including sophisticated data analytics by CEO Gary Loveman and controversial asset transfers that prompted fierce legal battles with creditors.

As Caesars navigated insolvency proceedings, the authors explore how investors like Apollo and TPG maneuvered to protect their interests, often pitting equity holders against debt holders. The events offer insights into the increasingly complex financial tactics used by private equity firms and their potential impacts on companies, investors, and bankruptcy laws.

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Sambur orchestrated a series of transactions amid the bankruptcy process that led to disputes, which included transferring valuable asset stakes to Caesars' holding company. Observers noted that such dealings diminished the value of the struggling companies, benefiting Apollo and TPG's position within Caesars' overall financial framework, as the authors noted.

A strategic entity known as Caesars Growth Partners was established with the objective of protecting and obtaining assets in anticipation of potential restructuring efforts.

In 2012, Apollo masterminded the creation of Caesars Growth Partners. The idea, according to Frumes and Indap, was to create a new company, unburdened by Caesars' pre-LBO debt, that could acquire assets from the existing Caesars and issue both stock and debt. Apollo and TPG also viewed Caesars Growth as a way to shield valuable parts of the company, particularly those that had been acquired after the LBO and were performing better than the rest.

The holding company of Caesars and TPG might have relied on advice from legal and financial advisors, the soundness of which could be dubious.

Frumes and Indap emphasize the critical role that prestigious financial and legal institutions played in endorsing the transactions' fairness, which was sought by Apollo, TPG, and Caesars' parent company. Throughout the bankruptcy proceedings, the scrutiny applied to their evaluation was thorough, unbiased, and independent, adhering to the utmost standards.

Caesars Entertainment Resort Properties (CERP) came into existence to manage the complexities of restructuring its property financing.

By the close of 2013, the completion of the CERP deal resulted in the Octavius Tower and the Linq properties moving from Caesars Palace's operational division, with the condition of assuming certain leasing obligations.

The transfer of valuable properties such as the Linq and Octavius Tower from Caesars OpCo, along with Apollo's rationale for their economic valuation.

Frumes and Indap describe how Apollo justified moving assets from Caesars OpCo without clear financial benefit by attributing substantial worth to vague benefits, such as the hypothetical operational cost savings associated with preventing a default by PropCo, even though there was little evidence to support this assessment. The allegations from the creditors focused on the accounting strategies employed and the contested valuation of "reasonably equivalent value" provided by a firm that Apollo utilized to its advantage.

Caesars Growth Partners became the new proprietors of the Quad, Bally's Las Vegas, and Harrah's New Orleans following their transfer from the Caesars Operating Company.

The process of moving Caesars' assets persisted. In their comprehensive 2014 narrative, Frumes and Indap detail how Caesars OpCo assigned the rights of four properties to Growth, including three venues in the famous gambling metropolis. Apollo Global Management, in conjunction with Texas Pacific Group, maintained that the redistribution of assets was crucial for fulfilling the commitments to Caesars' creditors, despite the transfer seeming disadvantageous since the prime assets were shifted without providing any form of recompense to those who had extended credit to the operating company.

The company that owned Caesars established a group made up of board members who were independent of the company's executive management.

The book's story highlights how private equity companies implemented a tactic that involved setting up independent boards of directors who, along with their own legal and financial consultants, sanctioned the redistribution of assorted assets, thereby shielding themselves from possible legal challenges. Some may doubt the independence of these committees along with their affiliated advisors. The establishment of these committees usually took place in the latter part of the deal process, and their ability to independently scrutinize the firm's choices was significantly limited, barely impacting the affirmation of the transaction's equity for the OpCo creditors.

The Caesars' insolvency process was characterized by fierce battles for control and heated legal confrontations between the company's stakeholders and its debt holders.

The story of the book progresses by exploring the intricate details of the bankruptcy proceedings under Chapter 11 and the intense disputes surrounding Caesars' residual assets.

Oaktree Capital Management led the charge for junior creditors seeking to recover their investments.

The book's story unfolds around a contentious legal dispute where Oaktree and Appaloosa challenged Apollo and TPG over the terms of the bankruptcy restructuring, alleging that they engaged in manipulative transactions that benefited Apollo and TPG at the expense of their investors.

Jim Bolin's initial suspicions were that Caesars had conducted deceptive transfers of assets, which wrongfully redirected value away from creditors.

The authors noted that Ken Liang and Jim Bolin, who played pivotal roles in Oaktree and Appaloosa's dealings with Caesars, recognized the potential for Apollo's strategies to negatively impact their financial interests. The companies continued their pursuit to reclaim their funds, undaunted by the disputatious and unprincipled conduct attributed to Apollo. Bolin consistently demonstrated an uncanny ability to anticipate market trends, adopting investment positions that were often considered excessively bold by other investors.

The company managing Caesars eliminated the guarantee on debt securities worth $12 billion.

The authors described Apollo's decision to end the assurance on the remaining bond liabilities of Caesars OpCo, which amounted to $12 billion, as a highly disputable move. Should the subsidiary responsible for the financial liability default, the holding company will honor the commitment. Revamping financial obligations increases their appeal to investors and leads to improved lending terms by strengthening the assurance creditors have in being repaid.

GSO Capital and BlackRock's arrangement to extend a new term loan was crucial in securing the future for Caesars OpCo.

Frumes and Indap describe how Apollo cut a sweetheart deal with the holders of bank loans to Caesars OpCo, who agreed to fund a new $1.75 billion loan, a portion of which was used to repurchase those same investors' existing loans at par or above. The essence of the transaction lay in altering the original pact, which effectively ended the corporate parent's guarantee of the banking liabilities, consequently transferring immense worth to both Apollo and TPG, along with the creditors who consented to this adjustment.

The commencement of the compulsory bankruptcy process under Chapter 11 for Caesars, along with the determination of the judicial setting for these proceedings.

Desperate to gain leverage against Apollo and its allies, the junior bondholders filed an involuntary Chapter 11 bankruptcy case against Caesars OpCo in January 2015. Subsequently, Caesars OpCo commenced its bankruptcy proceedings, which ignited a controversy over which court held the authority to adjudicate the case.

The appointment of Judge Benjamin Goldgar to oversee the case in Chicago, along with the selection of Richard Davis for the role of Examiner

Caesars, hoping for a more favorable venue, chose Chicago. Judge Benjamin Goldgar appointed Richard Davis to conduct a thorough investigation into each asset transfer that occurred before the bankruptcy to protect the creditors' interests.

The board of OpCo resolved to establish a dedicated group and to enlist the expertise of the legal professionals from Kirkland & Ellis.

Judge Goldgar approved the appointment of Kirkland & Ellis to serve as separate legal representation for Caesars OpCo, apart from its usual attorneys. The Caesars OpCo board formed a distinct group of independent directors as a special committee to strengthen the supervision of the bankruptcy process and related transactions that might present conflicts of interest with the overarching parent company.

The dispute centered on how thoroughly the examiner conducted the investigation and Bruce Bennett's commitment to probing allegations of responsibility involving external entities.

Bruce Bennett, representing the bondholders' committee with second-lien debt led by investment firms Appaloosa and Oaktree, pushed for a comprehensive investigation to examine asset transfers and potentially start litigation targeting the executives of Apollo and TPG.

Dave Miller, working alongside Elliott Management, reached a deal with Caesars' parent company that guaranteed the ongoing arrangements for Growth and CERP would be maintained.

Guided by Paul Singer, Elliott Management became the principal owner of Caesars' senior bonds. The book details the manner in which Elliott arranged a deal with Apollo and TPG shortly before the bankruptcy proceedings began. The agreed-upon final settlement contained measures that protected specific disputed transactions against legal challenges by creditors.

Elliott secured a significant monetary advantage by leveraging convertible preferred shares and employing mechanisms for hedging credit risk.

Frumes and Indap characterize Elliott's approach as using derivatives, specifically credit default swaps, which functioned as additional bets made in conjunction with Apollo's principal allies, BlackRock and GSO. The approach entailed leveraging preferred stock that could be converted to ensure the investment, which in turn markedly increased the worth of Caesars' bonds beyond the one billion dollar mark.

The insolvency of Caesars had widespread repercussions, affecting the operations of legal professionals and financial entities, as well as the outcomes for the gaming industry.

This portion explores the resolution of the case and its subsequent effects on both the investment sector and the laws governing bankruptcy.

The report submitted by Richard Davis, the Examiner, charged the implicated parties with engaging in fraudulent conveyance and neglecting their fiduciary duties.

Davis published his findings on the same date that marked the second anniversary of Caesars OpCo's bankruptcy declaration. The finding swiftly captured the spotlight on the front pages of newspapers. Davis had concluded that multiple asset sales were fraudulent and valued potential damages at $5 billion, a figure massively greater than the $1.4 billion that Caesars had pledged in its original settlement.

The fact that the law firm Paul Weiss represented both the parent company of Caesars and its subsidiary brought up concerns regarding possible conflicts of interest.

The inquiry uncovered a conflict of interest due to the law firm serving as an advisor to both the overarching corporation and its subsidiary divisions within Caesars. Frumes and Indap detail how the law firm would eventually be replaced by Caesars parent just weeks later.

During the discovery phase, the court, under Judge Goldgar's directive, mandated the disclosure of the private equity firm's financial information.

Despite Apollo's strong resistance, Goldgar was not swayed by their arguments and, in September 2016, determined that the arguments presented by the creditors held more weight. The magistrate, having become exasperated with Apollo and its partners, eventually compelled Marc Rowan, David Sambur, and David Bonderman, along with other private equity leaders, to disclose their financial statements and tax documents for the scrutiny of the debt holders.

The associates from Apollo agreed to forgo their original stake in Caesars, reaching a settlement with the creditors that also provided them with legal safeguards.

The book portrays Rowan and Sambur as being profoundly distressed by the outcome, which encompassed the judiciary's rejection of prior settlement efforts presided over by Judge Goldgar. Caesars increased their bid from $4 billion to $5.6 billion, leading to Apollo and TPG forfeiting their entire 2008 investment.

Gary Loveman perceived Carl Icahn's attempt to gain control of Caesars as the greatest insult.

During the final phase of its economic downturn, Carl Icahn, recognized for his expertise in casino ownership and leveraging the variable economic conditions of the renowned gambling city, acquired a substantial stake in Caesars, which resulted in the dismissal of the chief executive and the shift from its private equity owners. In 2017, after the company had successfully navigated its way out of bankruptcy, Icahn was instrumental in transforming the leadership at Caesars and later assisted in its takeover by an entity that focused mainly on local gambling venues.

The enduring popularity of the Caesars brand, coupled with the emergence of fresh gaming establishments,

After the company emerged triumphantly from bankruptcy, the enhanced value of the Caesars enterprise reinforced Apollo's conviction in the patterns of economic recovery, ultimately favoring the financial stakeholders.

Private equity companies are increasingly relying on financial strategies akin to those employed by Caesars.

Frumes and Indap argue that the investment in Caesars was notably audacious, reflecting a growing trend where private equity firms employed complex financial tactics that imposed significant debt on companies, while also creating inventive deal structures to protect the investors from financial setbacks.

Investors confronting difficulties also encounter new legal hurdles while attempting to adopt tactics used by firms involved in equity investments that are not publicly traded.

The authors ascertain that Oaktree and Appaloosa, despite facing challenges, sought to preserve their momentum by implementing tactics like "pulling a J.Crew," which entailed the use of covenant-lite documents to enable dubious asset transfers. The escalating intricacy of financial maneuvers frequently perplexed bankruptcy attorneys and adjudicators, complicating their efforts to follow established legal norms, and such intricacy frequently led to adverse outcomes for pension plans and organizations that had invested in these enterprises.