«SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -x CAESARS ENTERTAINMENT OPERATING : COMPANY, INC. and CAESARS ENTERTAINMENT : CORPORATION, ...»
INDEX NO. 652392/2014
FILED: NEW YORK COUNTY CLERK 08/05/2014 09:16 AM
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2014
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
CAESARS ENTERTAINMENT OPERATING :
COMPANY, INC. and CAESARS ENTERTAINMENT :
Plaintiffs, : Index No.
- against - : COMPLAINT :
APPALOOSA INVESTMENT LIMITED :
PARTNERSHIP I; PALOMINO FUND LTD.; :
THOROUGHBRED FUND L.P.; THOROUGHBRED :
MASTER LTD.; AVENUE CREDIT STRATEGIES :
FUND; AVENUE INVESTMENTS, LP; AVENUE - :
COPPERS OPPORTUNITIES FUND, L.P.; AVENUE :
INTERNATIONAL MASTER, LP; LYXOR/AVENUE :
OPPORTUNITIES FUND LIMITED; MANAGED :
ACCOUNTS MASTER FUND SERVICES - MAP10; :
AVENUE SS FUND VI (MASTER), LP; AVENUE :
SPECIAL OPPORTUNITIES FUND I, L.P.; CANYON :
CAPITAL ADVISORS LLC, ON BEHALF OF ALL OF :
ITS PARTICIPATING FUNDS AND MANAGED :
ACCOUNTS THAT ARE BENEFICIAL HOLDERS OF :
THE NOTES; CASPIAN CAPITAL LP; :
CENTERBRIDGE CREDIT PARTNERS, L.P.; :
CENTERBRIDGE CREDIT PARTNERS MASTER, :
L.P.; CENTERBRIDGE SPECIAL CREDIT PARTNERS :
II, L.P.; CONTRARIAN CAPITAL MANAGEMENT :
L.L.C. ON BEHALF OF ALL MANAGED ACCOUNTS :
AND AFFILIATED ENTITIES THAT ARE :
BENEFICIAL HOLDERS OF THE NOTES; ELLIOTT :MANAGEMENT CORPORATION; GSMP 2006
Plaintiffs Caesars Entertainment Operating Company, Inc. (“CEOC”) and Caesars Entertainment Corporation (“CEC”) allege, by and through their undersigned counsel, for their complaint for damages and declaratory and injunctive relief, as follows. These allegations are made based upon personal knowledge as to plaintiffs’ conduct and otherwise are based upon information and belief.
unfounded threats and bogus allegations made by defendants, who claim to hold certain of CEOC’s second lien notes (the “Second Lien Notes”) or, in the case of defendant Elliott Management Corporation (“Elliott”), certain of CEOC’s first lien notes (together with the Second Lien Notes, the “Notes”).
members, defendants holding Second Lien Notes (the “Second Lien Note-Holder Defendants”) and Elliott (together, “Defendants”) have injured plaintiffs by publicly, falsely, and maliciously asserting that CEOC and CEC have breached their fiduciary duties, engaged in fraudulent transfers, or defaulted under the indentures governing the Notes. Defendants’ attacks take the form of demand letters, media stories, disruptive appearances before gaming regulators, meritless allegations of improper conduct, and a baseless default notice from the Second Lien Note-Holder Defendants – that is, just about every mechanism other than the one supposedly aggrieved note
default swaps (“CDS”) – derivatives that function as credit insurance, paying the CDS holder the face amount of the insured note if CEOC has a payment default – driven by an interest in causing CEOC to default, injuring CEOC and sabotaging ongoing discussions between CEOC and its creditors (a problem commentators describe as the “empty creditor” syndrome).
seeing that CEOC defaults rather than survives and thrives. Elliott has a blatant conflict of interest because it has acquired a significant stake in CEOC’s 8½% senior secured notes due 2020, the smallest tranche of CEOC’s first lien notes, while at the same time amassing an even more significant position in CDS covering CEOC. Elliott is taking these steps – which injure CEOC and its note-holders – because it is betting that its CDS holdings will pay off if its baseless assertions can convince the market that CEOC will have a payment default or if CEOC actually has a payment default.
Americas Credit Derivatives Determinations Committee of the International Swaps and Derivatives Association (the “Committee”), the industry group that makes the crucial determination of whether there has been a payment default that triggers CDS payments.
has never missed a single payment of interest or principal on the Notes since they were issued in
2008. As highly-sophisticated investors, Defendants also know that the transactions executed by
improved its finances and extended its ability to make payments of its obligations as they come due, totaling billions of dollars of payments to debt-holders, including holders of the Notes.
Plaintiffs’ Successful Efforts in Support of CEOC
is a CEC subsidiary. Starting in 2008, when CEC and CEOC took their present form, in the midst of the worst financial crisis since the Depression, management embarked on sustained cost-cutting and streamlining at CEOC, saving hundreds of millions of dollars annually. To maximize value for all stakeholders, plaintiffs have pursued a strategy of generating liquidity, extending maturities, and removing or amending covenants in CEOC’s credit agreements to ensure stability and gain time for CEOC to address financial issues for the benefit of the company, its lenders, suppliers, customers and employees. This strategy and the financial transactions that have de-levered CEOC to date have yielded impressive, tangible results. CEOC has been able to make huge – and timely – payments to creditors, including interest payments of approximately $3 billion to first lien note-holders, $3 billion to second-lien note-holders, and $1.1 billion to unsecured creditors.
successful transactions to improve CEOC’s capital structure, lighten its debt load, and improve its prospects. All told, more than 45 separate capital markets transactions have resulted in approximately $5 billion of gross debt reduction and the extension of $9 billion in pre-2015 maturity debt. Prominent among these transactions was the creation of Caesars Growth Partners, LLC (“Growth”), a joint venture with Caesars Acquisition Company (“CAC”), which was intended to provide support for new projects. This was followed by a refinancing of commercial mortgage-backed securities (“CMBS”) secured by several Caesars-affiliated properties (the
casino properties and related assets by CEOC to Growth for $2.0 billion (the “Four Properties Transaction”); and the refinancing of certain of CEOC’s debt (the “CEOC Refinancing”).
which CEOC has paid interest and repaid debt at or before maturity, and amassed approximately $2 billion in cash on its balance sheet. This has redounded to the benefit not only of CEOC, but also of its creditors. Beyond the hundreds of millions of dollars that CEC and its investors have raised for the benefit of CEOC, CEC’s investors also have invested close to a half-billion dollars in CAC in support of the transactions described above and to improve the prospects of CEOC.
In the words of CEC’s Chairman and CEO, with the completion of these transactions, “CEOC will have added headroom under its maintenance covenant, providing CEOC with additional stability to execute its business plan.” Significantly, many of CEOC’s creditors other than Defendants have supported CEC and CEOC’s efforts to improve CEOC’s stability, and CEC and CEOC have had and continue to have productive discussions with these creditors.
Defendants’ Baseless Attacks
– the CERP Transaction, since March 2014, Defendants have attempted to undermine and impede CEC and CEOC’s efforts to de-lever CEOC, apparently in an effort to improve their leverage in negotiations with plaintiffs or to profit from a CEOC default. As noted, Defendants, directly and through their legal and financial advisors, have waged a very public campaign to injure plaintiffs, featuring false, malicious, and defamatory assertions, including that CEC and CEOC breached their fiduciary duties and engaged in fraudulent transfers.
15, 2009 governing their second lien notes (the “Second Lien Indenture,” and, together with the First Lien Indenture, the “Indentures”). In truth, there is no such default.
contained in the Indentures, of certain of CEOC’s obligations (the “Parent Guarantee”). That purported default allegedly took place when CEC stated publicly that upon its sale of 5% of CEOC’s stock, the Parent Guarantee was automatically terminated. CEC’s primary intent in selling equity in CEOC was to facilitate an essential financial transaction and begin to develop a public market for CEOC stock, that is, to establish a liquid and tradable equity currency that could facilitate future debt-for-equity exchanges and compensate employees. This is similar to the process whereby a now large and liquid public market was created for CEC stock.
plain words of the Indentures – by which Defendants are bound – explicitly provide that the Parent Guarantee would terminate when CEOC is no longer wholly owned by CEC without regard to how or why. Therefore, each of CEC and CEOC always had the ability to terminate the Parent Guarantee by selling, transferring, or issuing CEOC stock. As Defendants know, on May 5, 2014, CEC sold 5% of CEOC’s stock to sophisticated institutional buyers, and on May 30, 2014, CEOC issued approximately 6% of its stock to an employee benefits plan. Clearly, the Parent Guarantee has been terminated, because CEC now owns only approximately 89% of CEOC.
Guarantee terminated – the act that the Notice points to as constituting the breach – cannot be a default. The Indentures do not prohibit CEC from disclosing its sale of CEOC equity or the effect of that sale on the Parent Guarantee. It is absurd to argue that the Indentures somehow prohibit CEC from disclosing these material facts to investors and the market.
restrictions in the Indentures on the use of proceeds of “Asset Sales.” However, seven of the eight sales in the Four Properties Transaction are not “Asset Sales” subject to the restrictions that the Notice points to in the Indentures. And to the extent that any of these sales do constitute Asset Sales, they nevertheless satisfy all the requirements of the Indentures. Moreover, the Indentures do not restrict the use of proceeds from the Four Properties Transaction for a full 15 months after closing. Until August 2015, then, there can be no possible claim for a violation of these provisions in the Indentures.
have knowingly and falsely alleged that CEC and CEOC breached their fiduciary duties and engaged in fraudulent transfers, and manufactured allegations of default and events of default that lack any basis and are, in fact, belied by the terms of the governing Indentures. These claims of default would have been unmasked as meritless had Defendants brought their claims in a court of law. CEC and CEOC are now constrained to bring their own suit for damages resulting from Defendants’ malicious false statements and for a judicial declaration that there is
prevent continuing harm.
18. Accordingly, plaintiffs are entitled, inter alia, to the following relief:
(a) damages resulting from (i) Defendants’ knowingly tortious interference with their prospective economic advantage, through their false and defamatory misstatements of fact made with the intent to injure plaintiffs, and (ii) Elliott’s breaches of the First Lien Indenture, including Section 6.06(b) thereof;
(b) a declaration stating that (i) no default or event of default has occurred or is occurring under the Indentures, (ii) the Notice is null and void, (iii) plaintiffs have not breached their fiduciary duties or engaged in fraudulent transfers, or otherwise engaged in any violation of law, and (iv) Defendants have no basis to accelerate the principal and interest due under the Indentures; and (c) a preliminary and permanent injunction maintaining the status quo ante and prohibiting Defendants from (i) issuing any further notice of default, (ii) taking any action in furtherance of any notices of default, including issuing a notice of acceleration, other than in the context of judicial proceedings to determine the parties’ rights and obligations under the Indentures, and (iii) obtaining from the Committee a determination that there has been a credit event in respect of CEOC or CEC.
business in Las Vegas, Nevada. CEOC is a direct operating subsidiary of CEC. In addition to owning and operating its own properties, CEOC benefits from management fees generated by other Caesars-affiliated properties and such fees paid by third parties under management agreements.
business in Las Vegas, Nevada. Through its various affiliates, including CEOC, CEC owns, manages, or operates dozens of casinos throughout the United States.