By Howard Seife and Marian Baldwin Fuerst of Chadbourne & Parke LLP
The recent decision of the United States District Court for the Southern District of New York (the “S.D.N.Y.”) concerning the restructuring efforts of Caesars Entertainment Operating Company, Inc. (“OpCo”), the large United States casino operator which is currently in bankruptcy, should be on all indenture trustees’ radars. See MeehanCombs Global Opportunity Funds, LP v. Caesars Entertainment Corp., 14- cv-7091, 2015 WL 221055 (S.D.N.Y. Jan. 15, 2015). The case arises from an August 2014 transaction, in which OpCo restructured certain of its unsecured obligations resulting in the elimination of guarantees by OpCo’s parent, Caesars Entertainment Corporation (the “Parent,” together with OpCo, “Caesars”). Caesars moved to dismiss a lawsuit brought forth by certain OpCo unsecured noteholders. After heavily scrutinizing the August 2014 transaction, US District Court Judge Scheindlin held that the noteholders could proceed with a majority of their claims for breaches of the Trust Indenture Act of 1939, as amended (the “TIA”), and state law. The court’s decision, entered right on the heels of a December S.D.N.Y. decision addressing a similar situation, establishes a clear precedent that out-of-court restructurings eliminating parent guarantees are disfavored in this influential District. The decision cautions indenture trustees to closely review any changes to core terms even when acting under the direction of noteholders.
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