(Adds certain lenders opposing the plan in paragraphs 8,9; adds closing share price)
By Tom Hals
Jan 12 (Reuters) - A group of hedge fund creditors of Caesars Entertainment Corp sought on Monday to force its main operating unit into bankruptcy and to appoint an independent examiner to investigate what they allege was the plundering of the company.
The move follows Friday’s announcement that the largest U.S. casino operator had the backing of senior noteholders for its plan to cut the debt of the operating unit, known as CEOC, to $8.6 billion from $18.4 billion.
Under that plan, the hedge funds that filed the involuntary bankruptcy would be paid around 12 percent of what they are owed. They hold claims of $41.1 million, according to court papers.
The funds alleged that insiders of Caesars “plundered” billions of dollars in choice assets from the operating unit, including Planet Hollywood and The Quad in Las Vegas. They asked the Delaware Bankruptcy Court to appoint an examiner to investigate deals involving the operating company dating back to 2010.
“The action is designed to injure CEOC while these junior creditors attempt to boost their standing,” Caesars said in a statement. The company has said the asset moves were aimed at freeing the operating unit of capital-intensive properties.
The involuntary bankruptcy petition was filed by affiliates of Appaloosa Management, Oaktree Capital Management and Tennenbaum Capital Partners, which are large investors in financially distressed companies.
“They want to throw sand in the gears and slow down a prenegotiated plan,” said Jonathan Lipson, a professor at the Temple University School of Law.
Certain first lien bank lenders of CEOC said late on Monday they have agreed not to support, consent to or approve the proposed restructuring deal unless the transaction is approved by them, making the bankruptcy process more complex.
The group, holding more than 50 percent of the aggregate principal amount of first lien bank debt, is advised by Stroock & Stroock & Lavan LLP and Rothschild Inc, the statement said. It didn’t name the lenders involved in the group.
Examiners are often frowned upon by the lawyers who restructure companies because their investigations can derail a bankruptcy. Caesars creditors seem to be hoping to repeat the Chapter 11 case of Dynegy, a power plant operator.
Dynegy Holdings filed for bankruptcy in 2011 and junior creditors alleged assets had been moved to the parent company beyond their reach. An examiner found those moves were fraudulent and eventually the transferred assets were brought into the bankruptcy for the benefit of the creditors.
A company can contest an involuntary bankruptcy or convert it to a voluntary Chapter 11. The operating unit has said it will file for bankruptcy by Jan. 20.
The casino operator has been weighed down with debt from a $30 billion leveraged buyout in 2008 by TPG Capital and Apollo Global Management.
Caesars shares closed down 4.2 percent at $13.25 on Monday on the Nasdaq. (Reporting by Rohit T. K. and Supriya Kurane in Bengaluru, Tom Hals in Wilmington, Delaware; Editing by Saumyadeb Chakrabarty, Dan Grebler and Gopakumar Warrier)