Future of Caesars may be riding on bankruptcy court report

Leon Black must have the nerves of a riverboat gambler.

For more than a year, Black, the owner of Caesars casinos, has been locked in a bitter legal fight with David Tepper and other creditors, who claim the casino undervalued certain assets transferred outside their reach.

The assets were transferred just before Caesars’ biggest unit in January 2015 filed for Chapter 11 reorganization.

Tepper’s group pressed legal action against Caesars, asking a bankruptcy court judge to rule that Black’s Apollo Global and TPG Capital, co-owners of Caesars Entertainment and other non-bankrupt entities, need to hand over those assets so creditors can share in their upside in a reorganization payout.

And Tepper appears to be winning the war.

Last month, a court-appointed examiner, in a private meeting, told both Caesars officials and creditors’ lawyers he believed the company had indeed improperly moved the assets, sources said.

So you’d think Black and TPG would be close to settling the bitter legal battle.

But they are not, according to sources close to the matter.

While the two sides have talked, there will likely be no deal struck before Feb. 29, sources said Tuesday.

“There have been conversations in the last two to three weeks, but I have no expectations there will be an agreement in the next five days,” a source said.

That date is crucial because examiner Richard Davis is expected to release at least a summary of his findings by the end of the month.

If the summary goes against Black, it may put into motion actions that could cost Apollo and TPG a good chunk of their $3.5 billion Caesars investment.

Davis’ report is non-binding, but could influence a bankruptcy court judge. An anti-Caesars ruling could not only lead to a bankruptcy for all of Caesars’ units but also cause gaming commissions in some states to re-examine the gaming licenses of Caesars, the country’s biggest gaming company, a source said.

Apollo and TPG bought Caesars for $27 billion in 2008. Business almost immediately went south and the owners moved key assets out of a weaker debt-ladened brick-and-mortar company — which promptly tumbled into bankruptcy.

Tepper’s Appaloosa Management has a big stake in the bankrupt unit’s $5 billion of second-lien bonds that on Tuesday were trading at 32 cents on the dollar.

If pending lawsuits are successful, those bonds could rise in value to between 60 cents and $1, a source following the situation said.

Tepper likely bought the bonds in 2013 when they were trading at almost 60 cents, so accepting a slight rise from their present value would still represent a significant loss, sources said.

Once the report is released, a bankruptcy court judge is expected to grant Caesars a roughly 60-day injunction to reorganize the business and delay pending suits.

There is a March 14 trial date in New York on a pending $7 billion suit.

Meanwhile, Caesars on Tuesday reported improved earnings in the non-bankrupt part of the business, with quarterly net revenue rising 9 percent year-over-year, and full-year net revenues increasing 14.7 percent, to $4.5 billion.

Caesars declined comment.

Appaloosa did not return calls.