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Caesars faces bankruptcy after losing key ruling

Passengers leave the cabin after riding the 550 foot-tall (167.6 m) High Roller observation wheel, the tallest in the world, in Las Vegas, Nevada April 9, 2014. REUTERS/Las Vegas Sun/Steve Marcus

By Karen Pierog and Tom Hals

CHICAGO/WILMINGTON, Del. (Reuters) - Caesars Entertainment Corp (CZR.O) may be closer to joining its operating unit in bankruptcy after a federal judge refused to protect the casino company from creditor lawsuits seeking up to $11 billion, sending its stock plummeting.

U.S. Bankruptcy Judge Benjamin Goldgar in Chicago denied a Caesars request to stay four lawsuits by hedge fund creditors who are owed billions of dollars by Caesars' operating unit, Caesars Entertainment Operating Co, Inc.

The operating unit filed for Chapter 11 bankruptcy this year and the hedge funds allege Caesars guaranteed its debts. Caesars has said the lawsuits are without merit.

Caesars and its private equity backers Apollo Global Management LLC (APO.N) and TPG Capital said staying those lawsuits was critical to reaching a consensual overhaul of the operating unit's $18 billion in debt.

Caesars has said it could face judgments in the coming weeks that could force it into bankruptcy.

"There is now the potential that this bankruptcy can get very litigious, complex and long," said David Tawill, president of the Maglan Capital hedge fund.

Shares of Caesars ended down 41 percent at $4.76, while Apollo fell 2.9 percent to $21.21, both on Nasdaq.

Creditors, including affiliates of Centerbridge Partners, Oaktree Capital Management and Appaloosa Management, have argued that their cases in New York and Delaware are necessary to determine if the operating unit's debts are guaranteed by Caesars.

Caesars, formed through the 2008 buyout of Harrah's Entertainment, has been shuffling casinos and resort properties within the company's corporate family as it struggled with unsustainable debt and mounting losses.

Creditors allege that the best assets, such as the Linq Hotel & Casino in Las Vegas, have been moved beyond their reach into affiliates for the benefit of Apollo and TPG.

Shares of one of those affiliates, Caesars Acquisition Co, ended down 13 percent at $6.73 on Nasdaq.

Caesars has said the operating unit received fair compensation for the asset transfers, and Caesars has supported a review of the deals by an independent examiner.

In addition, Caesars plans to contribute up to $1.5 billion to support the proposed restructuring of its operating unit, which anticipates emerging from Chapter 11 as a casino operator and a separate property company.

The proposed restructuring has the support of the operating unit's first-lien noteholders.

Earlier this week, Caesars' shares rose more than 20 percent after the operating unit said a "significant" number of second-lien noteholders also joined the restructuring plan.

(Reporting by Tom Hals in Wilmington, Delaware and Karen Pierog in Chicago; Editing by G Crosse and Tom Brown)