WILMINGTON SAVINGS FUND SOCIETY, FSB, solely in its capacity as successor Indenture Trustee for the 10% Second Priority Senior Secured Notes due 2018, on behalf of itself and derivatively on behalf of CAESARS ENTERTAINMENT OPERATING COMPANY, INC., Plaintiff,
CAESARS ENTERTAINMENT CORPORATION, CAESARS GROWTH PARTNERS, LLC, CAESARS ACQUISITION COMPANY, CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC, CAESARS ENTERTAINMENT OPERATING COMPANY, INC., CAESARS ENTERPRISE SERVICES, LLC, ERIC HESSION, GARY LOVEMAN, JEFFREY D. BENJAMIN, DAVID BONDERMAN, KELVIN L. DAVIS, MARC C. ROWAN, DAVID B. SAMBUR, and ERIC PRESS, Defendants, and CAESARS ENTERTAINMENT OPERATING COMPANY, INC., Nominal Defendant.
Submitted: March 10, 2015
Martin S. Lessner, Richard J. Thomas, and Nicholas J. Rohrer, of YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; OF COUNSEL: Bruce Bennett, Sidley P. Levinson, and Joshua M. Mester, of JONES DAY, Los Angeles, California; Geoffrey Stewart, of JONES DAY, Washington, D.C.; Philip Le B. Douglas, Todd R. Geremia, and Rajeev Muttreja, of JONES DAY, New York, New York; and James Carr, Eric R. Wilson, and David Zalman, of KELLEY DRYE & WARREN LLP, New York, New York, Attorneys for Plaintiff Wilmington Savings Fund Society, FSB, solely in its capacity as successor Indenture Trustee for the 10% Second Priority Senior Secured Notes due 2018.
Kenneth J. Nachbar, William M. Lafferty, John P. DiTomo, and Lindsay M. Kwoka, of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Eric Seiler, Philippe Adler, Emily A. Stubbs, and Jason C. Rubinstein, of FRIEDMAN KAPLAN SEILER & ADELMAN LLP, New York, New York, Attorneys for Defendants Caesars Entertainment Corporation, Caesars Entertainment Resort Properties, LLC, Caesars Entertainment Operating Company, Inc., Caesars Enterprise Services, LLC, Eric Hession, Gary Loveman, Jeffrey D. Benjamin, Marc C. Rowan, David B. Sambur, and Eric Press.
Kenneth J. Nachbar, William M. Lafferty, John P. DiTomo, and Lindsay M. Kwoka, of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Marc E. Kasowitz, David S. Rosner, Andrew K. Glenn, and Joshua M. Greenblatt, of KASOWITZ BENSON TORRES & FRIEDMAN LLP, New York, New York, Attorneys for David Bonderman and Kelvin L. Davis.
Andrew D. Cordo and Marie M. Degnan, of ASHBY & GEDDES, PA, Wilmington, Delaware; OF COUNSEL: Christopher Harris and Daniel D. Adams, of LATHAM & WATKINS LLP, New York, New York, Attorneys for Defendants Caesars Growth Partners, LLC and Caesars Acquisition Company.
GLASSCOCK, Vice Chancellor
On December 5, 2014, 1 heard oral argument on and took under advisement the Defendants' Motions to Dismiss or Stay the Verified Complaint in this action. Due to the Defendants' representations that they would imminently seek to enjoin this action by application in the related, parallel bankruptcy proceedings in the Northern District of Illinois Bankruptcy Court, I thought it most efficient to withhold consideration of the Defendants' Motions. However, as the Defendants had not yet sought application in the Bankruptcy Court to enjoin this action at the time of a status conference on March 10, 2015, 1 informed the parties that I would proceed with my consideration of the pending Motions. For the reasons set forth below, I deny the Defendants' Motions to Dismiss or Stay.
I. BACKGROUND FACTS
A. Buyout and Debt Financing of Caesars
The facts underlying this dispute are extensive and complex, but, at this stage in the litigation, a brief adumbration is sufficient to resolve the Defendants' Motions. Defendant Caesars Entertainment Corporation ("CEC") is "a Delaware corporation that, through subsidiaries, joint ventures and other arrangements, owns, operates, and manages gambling casinos and properties in the United States and foreign countries." In January 2008, Defendants Apollo Global Management, Inc. ("Apollo") and TPG Capital, LP ("TPG"), along with other co-investors, acquired CEC, including its then-"principal operating subsidiary" Defendant Caesars Entertainment Operating Company, Inc. ("CEOC, " and together with CEC, "Caesars"), in a leveraged buyout priced at $30 billion. CEOC "incurred most of the debt used to fund the buyout, " and still owes approximately $19.3 billion of Caesar's total $25.3 billion outstanding long-term debt issued in the transaction.
Following the buyout, CEOC engaged in a series of additional debt offerings. On December 24, 2008, CEOC issued, and CEC guaranteed, $214.8 million aggregate principal amount of 10.00% second priority senior secured notes due 2015 and $847.6 million aggregate principal amount of 10.00% second priority senior secured notes due 2018, pursuant to an indenture between CEC, CEOC, and U.S. Bank National Association ("US Bank") as trustee (the "2008 Indenture"). That same day, two other agreements relevant to the parties' dispute were executed: CEOC and its subsidiaries entered into a collateral agreement ("the Second Lien Collateral Agreement") granting liens on "substantially all of their assets" to secure their obligations under the 2008 Indenture; and U.S. Bank and Bank of America, N.A. entered into an agreement defining "the relative rights of the Note-Holders and holders of more senior CEOC notes [(the "Senior Lenders")] with respect to the assets securing the Notes" (the "Intercreditor Agreement").
On April 15, 2009, CEOC additionally issued, and CEC guaranteed, $3.71 billion aggregate principal amount of 10.00% second priority senior secured notes due 2018, pursuant to an indenture between CEC, CEOC, and U.S. Bank (the "2009 Indenture"); these notes were secured by liens on "substantially all of CEOC's assets and certain of its subsidiaries' assets pursuant to the Second Lien Collateral Agreement." That same day, U.S. Bank executed the Joinder and Supplement to Intercreditor Agreement, subjecting its rights under the 2009 Indenture to the Intercreditor Agreement. Plaintiff Wilmington Savings Fund Society, FSB ("WSFS") is the successor trustee of U.S. Bank; WSFS has not asserted that it is not bound by the 2009 Indenture and the Intercreditor Agreement, and I assume for purposes of this Memorandum Opinion that it is so bound.
On April 16, 2010, CEOC additionally issued, and CEC guaranteed, $750 million aggregate principal amount of 12.75% second priority senior secured notes due 2018, pursuant to an indenture between CEC, CEOC, and U.S. Bank (the "2010 Indenture"); these notes "are also secured by liens against substantially all of CEOC's and certain of its subsidiaries' assets pursuant to the Second Lien Collateral Agreement."
B. CEOC's Insolvency and Asset Sell-Off
The Plaintiff alleges that in the period from 2008 to 2010, while CEOC was continuing to burden itself with additional debt, Caesars was simultaneously experiencing plummeting revenue brought on by the 2008 financial crisis. Beginning only months after Apollo and TPG's buyout of Caesars, the financial crisis had a devastating effect on the gaming industry in general, but its forces were particularly catastrophic when they reached a debt-ridden CEOC; the Plaintiff explains that "the global financial crisis and ensuing recession crippled Caesars' business" and hit CEOC especially hard "as revenues at its casinos needed to service its debt fell dramatically.
In response to CEOC's "unsustainable capital structure" brought on by the recession, Apollo and TPG initially attempted to relieve the pressure of CEOC's indebtedness through amending credit facility agreements and offering debt exchanges. However, the Plaintiff alleges that in 2010, when CEOC's financial troubles persisted, Apollo and TPG began resorting to selling off CEOC's assets to other CEC subsidiaries, "stripping] CEOC of valuable assets" such that those assets would be unreachable by CEOC's creditors. The Plaintiff asserts that TPG and Apollo's efforts to hide CEOC's assets continued into 2010, even after the economy and gaming ...