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Howard Stutz

Caesars official says company can't fund some pension payouts

27 March 2015

LAS VEGAS -- Caesars Entertainment Corporation General Counsel Tim Donovan said Thursday that the company asked its bankruptcy lawyers about finding a way to make pension payments to 63 former employees whose checks were halted in the reorganization of its largest operating division, but the idea was rejected.

Donovan told the Nevada State Gaming Commission in Las Vegas that bankruptcy law does not allow a company in a Chapter 11 reorganization to separate supplemental employee retirement plans from other unsecured creditors.

He said the company was told the bankruptcy judge in Chicago overseeing the case “would not look favorably” upon a motion to pay the retired workers $33 million.

“Caesars is not the villain here,” Donovan said. “We’re in a very unfortunate situation.”

Donovan said other large bankruptcy reorganizations in recent years — General Motors, United Airlines, American Airlines — all had large retirement plans for which payments to retirees were stopped.

“We’re sympathetic with the issues,” Donovan said. “This is a terrible consequence of the bankruptcy.”

The subject of the lost payments came up two weeks ago at the Nevada State Gaming Control Board during a routine licensing hearing for Caesars Entertainment Operating Co., the division placed into bankruptcy in January.

The Gaming Commission approved those matters, but not before spending more than 2½ hours with Donovan and Caesars Chief Financial Officer Eric Hession discussing the operating units bankruptcy. The retirement plan took up much of the conversation.

In the end, the commission was apologetic about not being able to force Caesars to fund the payments. However, commissioners said they will have more questions when new Caesars CEO Mark Frissora is licensed later this year.

Several commissioners were critical of Caesars Entertainment and its financial issues. Caesars has a gaming industry-high $22.8 billion in long-term debt. The operating unit has $18.4 billion of the debt, which the company plans to reduce by $9.8 billion in the bankruptcy.

Hession said unsecured creditors would receive only “10 cents on the dollar” through the restructuring.

“The bankruptcy is unfortunate, but I would use the word embarrassing,” Commission Chairman Tony Alamo Jr. siad. “This is the largest private bankruptcy this state has ever had. How did we get here?”

Commissioner Randolph Townsend suggested that Caesars executives “who were paid large bonuses” fund the payments.

The issue was first brought to light by the Las Vegas Review-Journal after a former employee contacted the newspaper. Former workers were notified Jan. 15 through a memorandum from Caesars that the retirement fund was included as unsecured debt in the CEOC filing.

Donovan said the company was largely unaware of the retirement plan before the bankruptcy. The funds were inherited by Caesars Entertainment during its corporate acquisitions.

“We can’t even find the paperwork for some of them,” Donovan said. “These were part of a hodgepodge of acquisition liabilities.”

He told commissioners that no other Caesars retirement plans covering 51,000 employees was affected by the bankruptcy.

However, Nicole Houng, the daughter of retired 32-year Caesars Palace host Kenneth Houng, who lost his pension check, tearfully told the Gaming Commission during the public comment session that what the company did was “unfair” and “disgusting.”

Donovan apologized to the Houngs and said the company twice asked its attorneys about filing a request with the court. But the idea was frowned upon.

“We were advised that if we filed that motion, it would impact the credibility of CEOC,” Donovan said.

The operating unit’s reorganization has been called “the largest and most complex bankruptcy in a generation.”

Caesars is seeking court approval to convert the unit into a publicly traded real estate investment trust. The unit controls Caesars Palace, Caesars Atlantic City, Harrah’s Reno and more than a dozen regional properties.

Donovan said Wednesday’s hearing in Chicago brought out more than 200 bankruptcy lawyers.

“We’re paying for 95 percent of them and not all of them are ours,” he said.

Hession said the bankruptcy will leave the operating unit with “a more simplified capital structure.”

He said Caesars Entertainment, which took on the bulk of its debt in 2008’s $31 billion leveraged buyout, had “tried for years to avoid this scenario.”

But Commissioner John Moran Jr. questioned why Caesars executives were paid large bonuses while the company had employee layoffs.

And Townsend pointedly told the Caesars executives at the hearing to focus on their casinos.

“Can we not build anymore Ferris wheels for a while?” he said.
Caesars official says company can't fund some pension payouts is republished from