Jackpot: Lawyers and Advisers Made Over $300 Million at Caesars
Firm received approval to pay lawyers, investment bankers, financial advisers and tax consultants more than $107 million since start of case, papers show
Caesars Palace in Las Vegas. Caesars Entertainment Operating Co. recently announced a settlement of its $18 billion restructuring. PHOTO: FRANCIS JOSEPH DEAN/NEWSCOM/ZUMA PRESS
The bill for Caesars Entertainment Operating Co.’s year- and-a-half-long battle with creditors is in. And it comes to $301.3 million.
The casino company disclosed the cost in a bankruptcy-court filing Friday, days after announcing a settlement that will bring peace to the $18 billion restructuring. The fees and expenses, which Caesars paid between the date of its Jan. 15, 2015, bankruptcy filing through Aug. 31, 2016, have gone to the roughly two dozen law, investment-banking, consulting and other professional firms on its chapter 11 payroll.
The chapter 11 case of CEOC, the operating unit of Caesars Entertainment Corp., has been a battle from the start, when a group of junior bondholders, including hedge funds Appaloosa Management LP and Oaktree Capital Management LP, sought to force CEOC into involuntary bankruptcy.
Lawyers at Kirkland & Ellis LLP quickly filed a voluntary chapter 11 petition for CEOC to take control of its restructuring. Since then, the company has butted heads with the junior bondholders and, from time to time, other creditor groups, on several issues throughout the case.
Represented by lawyers at Jones Day, the junior bondholders’ ultimate goal was to increase their gains on the bonds by calling on Caesars and its private-equity backers— Apollo Global Management LLC and TPG—to contribute more funding to the restructuring in exchange for broad liability releases.
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For months, Apollo and TPG weren’t included in Caesars’s offer to provide financial support to the restructuring, though the private-equity firms were slated to share in liability releases. After 20 months of fighting to hang onto their stakes, Apollo and TPG recently agreed to surrender all of their Caesars equity to CEOC creditors.
The victory—which is expected to increase junior bondholders’ recoveries to about 66 cents on the dollar from an original offer of nine cents—came at a cost.
Court papers show CEOC won approval to pay its lawyers, investment bankers, financial advisers and tax consultants more than $107 million from the start of the case through May 31. During the same time, the court approved $24.3 million in bills from the junior bondholders’ advisers.
“This case is one of many when we’ve seen private-equity owners get pretty aggressive, and it imposes costs on creditors when they do that,” said Stephen Lubben, a law professor at Seton Hall University.
The fees that such professionals charge are publicly disclosed and subject to court approval. Such transparency is a hallmark of chapter 11, in which companies must pay a price to win breathing room from their creditors and other benefits.
EARLIER COVERAGE
- Caesars, Creditors Reach Restructuring Deal
- Caesars Pledges More Than $5 Billion to Unit’s Reorganization
- Caesars Bankruptcy Mediator Abruptly Resigns
- Caesars Shield From Bondholder Litigation Gets Extended
- Caesars Logs $2 Billion Loss on Charges Tied to Largest Unit’s Reorganization
- Caesars Brings More Creditors on Board With Restructuring
Not only does CEOC have to foot the bills of its advisers—apart from Kirkland, they include investment bankers at Millstein & Co. and a chief restructuring officer from AlixPartners LLP—but also those of its creditors.
There are two official creditor committees, for the junior bondholders and unsecured creditors, whose bills the company is legally obligated to pay.
CEOC also paid the professional fees of two creditor groups that have consistently supported its restructuring—its senior bank lenders and senior bondholders. While not required, it is common for a company in bankruptcy to throw money to such creditors in exchange for their backing.
Adding another layer of cost to the case was the court-appointed examiner. Last year, the bankruptcy court asked Richard J. Davis, a former Watergate prosecutor, to lead an investigation potential legal claims around which the restructuring disputes centered.
Court papers show Mr. Davis’s yearlong probe cost a little over $56 million, which included his discounted $850 hourly rate plus the discounted fees of lawyers at Winston & Strawn LLP and Luskin, Stern & Eisler LLP as well as financial advisers at Alvarez & Marsal Global Forensic and Dispute Services.
Reached Monday, Mr. Davis declined to comment.
To keep an eye on the fees, the bankruptcy court appointed a fee examiner—University of Nevada, Las Vegas, law professor Nancy Rapoport. Court papers show she has received nearly $409,000 to date for digging into the various bills and pointing out areas of concern, such as overuse of expensive partners for work that could be performed by cheaper lawyers.
Reached Monday, Ms. Rapoport said her compensation covers her fees plus those of law students and alumni who helped her monitor the cost of the CEOC case. She said good fee examiners save the court time and can lead to improved billing practices by professionals working on a case.
“I think we’re successful on both fronts,” she said.
Court filings show CEOC spent $12.1 million last month, but payments reached more than $28 million in one month last year.
“Those fees are about what we would expect for a case of this size and complexity,” said UCLA law professor Lynn LoPucki, who created a fee calculator to estimate the cost of a large chapter 11 case.
The fees charged in the CEOC case, while high, don’t measure up to the costs of larger, even more complex cases.
The chapter 11 case for Lehman Brothers Holdings Inc., which filed for bankruptcy in September 2008 and emerged in March 2012, cost $1.89 billion.
The fees are still stacking up as professionals continue to manage Lehman’s assets and pay its creditors, though court papers show annual costs have fallen from $338.7 million in 2013 to $185 million last year. The continuing work this year has cost $92.7 million through August.
Write to Jacqueline Palank at jacqueline.palank@wsj.com
