November 24, 2014 / 6:20 PM / 5 years ago

UPDATE 2-Caesars calls noteholder's claim of default meritless

(Adds analyst quote and share prices, paragraphs 6-7)

By Tom Hals

Nov 24 (Reuters) - Caesars Entertainment Corp disputed on Monday a claim that its operating unit had defaulted in the latest twist in the casino operator’s attempt to restructure billions of dollars of debt.

In a regulatory filing, Caesars said the operating unit, Caesars Entertainment Operating Co or CEOC, had not defaulted on the $1.25 billion of first-lien notes covered by a default notice.

The dispute ratchets up pressure on Caesars, the world’s largest gaming company, which has warned it may file for bankruptcy if it cannot find a plan to satisfy its creditors. The company has suffered continued losses in regional markets like Atlantic City that have offset strong results in Las Vegas.

UMB Bank, trustee for the first-lien notes, notified Caesars on Friday of the alleged default by the operating unit, saying the unit had not received fair value for assets it recently transferred to other Caesars affiliates.

Caesars said the operating unit believed the allegations about the transfers were meritless.

“The picture for creditors of CEOC becomes even more murky,” wrote Kim Noland, an analyst with Gimme Credit, in a Monday report. She said prices for first-lien notes indicate investors do not anticipate receiving more than $100 million in interest payments that are due Dec. 1.

Shares of Caesars Entertainment were up 1.3 percent at $16.23 in afternoon trading on Nasdaq.

Caesars on Nov. 19 revealed it had been discussing a plan with first-lien noteholders to split the operating unit into a REIT and an operating company.

Under that plan, first-lien noteholders would receive about 94 percent of what they were owed.

Caesars said that the REIT plan had been superseded by newer proposals and that negotiations were continuing.

Caesars has been defending itself against a lawsuit by noteholders in a Delaware state court which seeks to unwind sales by the operating unit of Las Vegas properties such as Octavius Tower.

The lawsuit alleges that billions of dollars of assets were put beyond the reach of creditors in anticipation of a default on $25 billion in debt.

Caesars has denied the allegations and said the deals were meant to bolster the operating unit’s finances.

The operating unit is responsible for much of the debt taken on when private equity firms Texas Pacific Group and Apollo Management led a 2008 leveraged buyout of Harrah’s Entertainment Inc, which became Caesars. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Chizu Nomiyama and Tom Brown)

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