The Caesars Palace Coup

1. The Ill-Timed LBO and its Immediate Fallout

"We have been trained to drive a Ferrari and now we are stuck in a Kia."

A gamble gone wrong. In 2008, private equity giants Apollo Global Management and TPG Capital acquired Harrah's Entertainment for a staggering $28 billion, just as the global financial crisis was unfolding. This massive leveraged buyout (LBO) loaded the casino company with $24 billion in debt, based on the flawed assumption that the gaming industry was recession-proof. The timing proved disastrous, as the economy tanked, consumer spending plummeted, and Las Vegas tourism suffered.

Debt burden mounts. Harrah's, soon rebranded Caesars Entertainment, found itself drowning in debt. Its operating profit (EBITDA) fell by a third from 2007, while interest expenses soared. The company was forced to make drastic cuts, including layoffs, 401(k) suspensions, and deferred property maintenance, leading to deteriorating customer experience and employee morale. This stark reality forced Apollo and TPG to seek creative, and often controversial, ways to keep their investment alive.

Desperate measures begin. Facing imminent default, Apollo and TPG initiated a series of complex financial maneuvers to "extend the runway" for Caesars. These included discounted debt buybacks and exchange offers, where creditors were persuaded to swap existing debt for new paper with different terms. These early actions hinted at the aggressive tactics that would define the coming years, as the private equity owners prioritized their equity stake over the interests of the company's burgeoning creditor base.

2. Apollo's Systematic Asset Stripping Strategy

"A transaction like this is the only way we see to ‘have our cake and eat it too’…if things do not work out, our position is substantially improved vs the status quo…cash invested in [the] partnership grows over time, thereby increasing value and ‘war chest’ upon a potential restructuring event."

Value siphoned away. As Caesars spiraled, Apollo, led by Marc Rowan and David Sambur, devised a strategy to transfer valuable assets out of the main operating company (OpCo) into new entities (Caesars Growth Partners, Caesars Entertainment Resort Properties - CERP) that they controlled. These "Growth" and "CERP" transactions, executed between 2012 and 2014, involved moving prime Las Vegas properties like Planet Hollywood, The Linq, and the Octavius Tower, along with the lucrative interactive gaming business (CIE), out of OpCo.

Controversial transfers. The transfers were structured to benefit Apollo and TPG's equity in the new entities, often with OpCo receiving little to no cash consideration. For example:

• Growth Transaction (2013): Planet Hollywood and Horseshoe Baltimore sold to Caesars Growth for $360 million, with CIE also transferred.
• CERP Transaction (2013): The Linq and Octavius Tower moved to CERP with no cash payment, justified by theoretical "avoided costs."
• Four Properties Deal (2014): Cromwell, Bally's Las Vegas, Quad, and Harrah's New Orleans sold to Caesars Growth for $2 billion, a price at the low end of valuations.

Legal risks ignored. These maneuvers were highly contentious, raising concerns about "fraudulent conveyance" – the illegal transfer of assets to avoid creditor claims. Despite internal warnings and legal advice, Apollo pressed ahead, believing these actions would strengthen their negotiating position in an inevitable restructuring, effectively creating a "war chest" for themselves at the expense of OpCo's creditors.

3. The Parent Guarantee: A Legal Battleground

"This either is a real guarantee or its securities fraud."

A critical assurance. A key feature of Caesars' original LBO debt was a "parent guarantee" from the publicly listed Caesars parent company (controlled by Apollo and TPG) on the OpCo's $18 billion in loans and bonds. This guarantee provided comfort to creditors, assuring them that if OpCo faltered, they could pursue the parent company's assets. However, as Apollo created new, valuable entities (Caesars Growth, CERP) under the parent, this guarantee became a multi-billion-dollar liability for the private equity owners.

The guarantee's demise. To sever this liability, Apollo executed two controversial transactions in 2014:

• B-7 Term Loan: A new $1.75 billion loan was issued, with GSO and BlackRock as anchor investors, in exchange for amending the credit agreement to weaken the parent guarantee on $5 billion of bank debt.
• OpCo Stock Sale: A 5% stake in OpCo was sold to select hedge funds (Paulson, Scoggin, Chatham) for a nominal amount, making OpCo no longer a "wholly-owned subsidiary" and purportedly terminating the guarantee on $12 billion of bond debt.

Legal challenges mount. Creditors, particularly the junior bondholders, immediately challenged these actions, arguing they violated the Trust Indenture Act of 1939 (TIA), which required unanimous consent for changes to core debt terms. The "MeehanCombs" lawsuit, alleging the guarantee termination was illegal, became a pivotal legal battle, threatening to nullify Apollo's strategy and expose the parent company to massive liability.

4. Creditor Disunity and Strategic Maneuvers

"Everyone comes to the table with a gun, but Apollo is the only party who puts it on the table before the meeting starts."

Divide and conquer. Apollo's strategy relied heavily on exploiting divisions among Caesars' diverse creditor base. The $18 billion debt stack was held by various groups—senior bank loans, senior bonds, junior bonds, and unsecured notes—each with different priorities and legal rights. Apollo skillfully played these groups against each other, offering customized deals and incentives to secure their support.

Key creditor factions:

• Senior Bank Loans (GSO, BlackRock): Initially swayed by fees and favorable terms in the B-7 loan, but later became holdouts demanding full recovery.
• Senior Bonds (Elliott Management): Led by Dave Miller, Elliott used credit default swaps (CDS) to bet on bankruptcy and strategically allied with Apollo to secure a lucrative restructuring support agreement (RSA).
• Junior Bonds (Oaktree, Appaloosa): Led by Ken Liang and Jim Bolin, this group became Apollo's fiercest adversary, refusing to settle for pennies and pursuing aggressive litigation.
• Unsecured Notes (MeehanCombs, Trilogy): A smaller group whose lawsuit over the parent guarantee became a critical legal precedent.

Tactical warfare. Negotiations were characterized by hardball tactics, including threats of "cramdowns" (forcing unfavorable terms on holdouts), "manufactured defaults," and even congressional lobbying to change securities laws. This created an environment of intense mistrust and animosity, making a consensual resolution incredibly difficult.

5. The Examiner's Damning Indictment

"The potential damages from those claims considered ‘reasonable’ or ‘strong’ range from $3.6 billion to $5.1 billion."

Independent investigation. In March 2015, Judge Goldgar appointed Richard Davis as an independent examiner to investigate the controversial pre-bankruptcy transactions. Davis, a former Watergate prosecutor and seasoned legal expert, was given broad authority to review millions of documents and interview nearly 100 key individuals, including Marc Rowan, David Sambur, and Gary Loveman.

Devastating findings. Davis's 1,800-page report, released in March 2016, was a crushing blow to Apollo. It concluded that assets were indeed "removed from OpCo to the detriment of OpCo and its creditors," estimating potential damages from $3.6 billion to $5.1 billion. The report found:

• Actual fraudulent transfers: Several transactions, including the Growth and Four Properties deals, were deemed to have been executed with intent to "hinder," "delay," or "defraud" creditors.
• Breaches of fiduciary duty: Directors of both the Caesars parent and OpCo, including Rowan, Sambur, Bonderman, and Loveman, were found to have breached their duties, exposing them to personal liability.
• Aiding and abetting: Apollo and TPG were accused of aiding and abetting these breaches, with Apollo facing higher liability due to its dominant role.

Critique of advisors. The report also harshly criticized the investment banks (Evercore, Perella Weinberg, Centerview) for their "lazy and shoddy" valuation analyses and Paul, Weiss for its conflicts of interest in representing both Apollo and Caesars, suggesting its advice was compromised. This independent validation of creditor claims dramatically shifted the power dynamics in the bankruptcy.

6. Judge Goldgar: The Unpredictable Catalyst

"The injunctions here have provided the Caesars parent, Apollo, and TPG a comfortable, free ride on the debtors coattails. They have shown no keen sense of urgency to resolve the outstanding disputes that gave rise to the bankruptcy case—and frankly, neither have the debtors, at least where the disputed transactions are concerned. The Caesars parent, Apollo, and TPG have evidently felt no particular pressure to expedite the reorganization process. Now perhaps they will."

An unconventional judge. Judge Benjamin Goldgar, initially seen as an inexperienced wildcard, became a pivotal figure in the Caesars bankruptcy. His courtroom style was unorthodox, often prioritizing substance over legal formality and showing little deference to powerful law firms or private equity titans. He frequently challenged lawyers, questioned their motives, and expressed frustration with the slow pace of negotiations.

Crucial rulings. Goldgar's key decisions consistently favored the junior creditors and pressured Apollo:

• Examiner appointment: He granted a broad scope for Richard Davis's investigation, despite OpCo's and Apollo's attempts to limit it.
• Injunction lifted: He repeatedly refused to extend injunctions halting the parent guarantee litigation, forcing Apollo to confront billions in potential liability.
• Discovery of personal financials: In an unprecedented move, he ordered Apollo and TPG executives to disclose their personal financial information.

Shifting dynamics. Goldgar's rulings, particularly the lifting of the injunctions, were instrumental in forcing Apollo to the negotiating table. He explicitly criticized Apollo's "comfortable, free ride" and lack of urgency, signaling that he would not approve a restructuring plan that did not adequately address creditor claims and hold the private equity firms accountable.

7. Personal Liability and Financial Transparency

"But these folks are going to have to pony up the paper, okay?"

Unprecedented order. In September 2016, Judge Goldgar issued a stunning order compelling Marc Rowan, David Sambur, David Bonderman, Gary Loveman, and Eric Hession to turn over their personal financial records. This was a direct response to Bruce Bennett's motion, seeking to determine their individual wealth to satisfy potential multi-billion-dollar judgments for fraudulent transfers and breaches of fiduciary duty.

A direct hit. The order was a profound humiliation for the private equity titans, who had previously undergone invasive scrutiny for gaming licenses but never faced such a demand in a bankruptcy court. It signaled that Goldgar was serious about holding individuals accountable and would not allow Apollo to hide behind corporate structures or insurance policies. The prospect of Jones Day lawyers sifting through their most intimate financial details was a powerful motivator for settlement.

Forced to the table. While Apollo argued that the gaming licensing process already provided sufficient financial transparency, Goldgar's ruling underscored the severity of the allegations and the potential for personal financial exposure. This unprecedented judicial intervention was a critical turning point, forcing Apollo to reconsider its hardline stance and engage in serious settlement talks with the junior creditors.

8. The Power of Strategic Holdouts

"David, I love these facts. There are like eight deals here that are going to get challenged. I only have to win one of them, you gotta win ’em all."

Oaktree and Appaloosa's resolve. While many creditors, including senior groups like Elliott and GSO, eventually cut deals with Apollo, the junior bondholders led by Oaktree and Appaloosa remained steadfast. They refused to accept lowball offers, believing their legal claims against Apollo for fraudulent transfers were strong, especially after the examiner's report. Their strategy was to hold out, litigate aggressively, and force Apollo to pay a much higher price.

Key elements of their strategy:

• Involuntary bankruptcy: Forcing Caesars into Chapter 11 to gain control over the process and venue.
• Examiner appointment: Pushing for an independent investigation to uncover wrongdoing.
• Parent guarantee litigation: Pursuing lawsuits to enforce the parent company's guarantee on OpCo debt.
• Refusal to settle: Withstanding immense pressure from Apollo and other creditors to accept early, unfavorable deals.

Vindication through patience. This strategic patience, combined with Bruce Bennett's relentless litigation, ultimately paid off. Despite being offered as little as nine cents on the dollar at the outset, Oaktree and Appaloosa's unwavering stance, backed by Goldgar's rulings, forced Apollo to capitulate and agree to a settlement that provided a recovery of 65.5 cents, a massive windfall.

9. A Costly Capitulation and Massive Creditor Windfall

"The total contribution to the settlement pot now would rocket from $4 billion to $5.6 billion, ahead of the high end of Richard Davis’s estimated liability range."

Apollo's surrender. Faced with Judge Goldgar's rulings and the looming threat of multi-billion-dollar judgments, Apollo and TPG finally capitulated in September 2016. The "best-and-final" settlement proposal dramatically increased their contribution to $5.6 billion, exceeding the examiner's high-end liability estimate. This included Apollo and TPG giving up their entire $2 billion equity stake in the Caesars parent, a direct response to Goldgar's insistence that they feel "real pain" for their liability releases.

Creditor windfalls. The settlement slashed OpCo's debt from $18 billion to less than $8 billion. Creditors received a mix of cash, new debt, and equity in the reorganized Caesars and its new REIT, VICI Properties.

• Senior loan holders: Received recoveries well over 100 cents on the dollar.
• Senior bondholders (Elliott): Benefited from their lucrative credit default swap bets and a "flesh-eating bacterium" convertible preferred stock in VICI, netting an estimated $1 billion.
• Junior bondholders (Oaktree, Appaloosa): Saw their recovery jump from an initial 9 cents to 65.5 cents, and eventually to 100 cents due to rising stock values, a staggering $3 billion gain.

Peace at a price. The settlement, finalized in January 2017, marked the end of a brutal two-year bankruptcy. While Apollo and TPG lost their original investment, they retained a small stake in the new Caesars and secured coveted liability releases, allowing them to move on from the "greatest messes of our time."

10. The Caesars Coup's Enduring Legacy

"All these current situations are ‘little league.’ Caesars was the seventh game of the World Series."

A new playbook. The Caesars bankruptcy, though a defeat for Apollo, became a roadmap for aggressive financial engineering in the distressed debt world. The industry observed that Apollo, despite its tactics, suffered few serious repercussions, inspiring others to adopt an "Apollo ethos." This led to new maneuvers like "pulling a J.Crew" (shifting assets away from creditors) and "manufactured defaults" (triggering defaults to profit from CDS).

Evolving landscape. The case highlighted the increasing complexity and ruthlessness of corporate restructurings:

• Weak covenants: The prevalence of "covenant-lite" debt allowed companies greater flexibility to move assets.
• CDS market: The use of credit default swaps for strategic advantage became more pronounced.
• Judicial and legislative battles: Conflicts extended beyond courtrooms to Congress, with lobbying efforts to change securities laws.

The players move on. Many key figures continued their careers, often applying lessons learned from Caesars. Marc Rowan built Athene, a revolutionary credit and insurance unit for Apollo. David Tepper converted Appaloosa into a family office after his Caesars windfall. Bruce Bennett continued his string of novel assignments, representing creditors in other mega-bankruptcies. The Caesars saga, a "seventh game of the World Series" in corporate finance, left an indelible mark on Wall Street, shaping the strategies and ethics of distressed investing for years to come.

Last updated: December 15, 2025