Item 7.01 Regulation FD Disclosure.
On June 5, 2014, Caesars Entertainment Operating Company, Inc. ("CEOC"), a
majority-owned subsidiary of Caesars Entertainment Corporation ("CEC"), received
a Notice of Default and Reservation of Rights (the "Notice") from holders (the
"Noteholders") purporting to own at least 30% in principal amount of CEOC's
outstanding 10.00% second-priority senior secured notes due 2018 (the "Notes")
issued under the Indenture, dated April 15, 2009 (the "Indenture"), by and among
CEOC, CEC and U.S. Bank National Association, as trustee (the "Trustee").
The Notice alleges that the following defaults have occurred and are continuing
under the Indenture: (i) the transfers by CEOC and its subsidiaries to Caesars
Growth Partners LLC ("Caesars Growth Partners") of The Cromwell, The Quad Resort
& Casino, Bally's Las Vegas, Harrah's New Orleans and 50% of the ongoing
management fees and any termination fees under the management agreements for
these properties, which were consummated on May 5, 2014 and May 20, 2014,
violated the asset sales covenant under the Indenture because, among other
things, (a) the consideration received by CEOC was not at least equal to the
fair market value of the assets sold and any determination to the contrary by
CEOC was not made in good faith and (b) any dispositions of equity interests or
assets by restricted subsidiaries to unrestricted subsidiaries allegedly did not
constitute permitted investments (as such transfers are not "investments" within
the meaning of that term) under the Indenture and allegedly did not alter the
fact such dispositions are part of a series of related transactions resulting in
the sale of assets of CEOC and/or its restricted subsidiaries (clauses (a) and
(b) collectively, the "Asset Sale Default"); and (ii) in violation of the
Indenture, CEC denied and/or disaffirmed its obligations under the Indenture
and/or its guarantee of the Notes by stating in its Current Report on Form 8-K
dated May 6, 2014 that upon the sale of CEOC's common stock to certain
investors, CEC's guarantee of CEOC's outstanding secured and unsecured notes was
automatically released (the "Guarantee Default"). The Notice alleges that the
conditions to the release of CEC's guarantee under the Indenture have not
occurred and the alleged Guarantee Default constitutes an event of default under
the Indenture as a result of CEOC's failure to cure the default prior to May 16,
2014 as proscribed by the Indenture. The Notice claims that absent any immediate
written notice and agreement from CEOC that it will promptly take all steps
necessary to rescind the asset sales in order to comply with the Indenture, such
default also constitutes an event of default under the Indenture.
There is approximately $3.7 billion of Notes outstanding under the Indenture.
Under certain circumstances, the holders of at least 30% in principal amount of
outstanding Notes may accelerate the Notes upon an actual event of default under
the Indenture and may, after providing the Trustee reasonable security or
indemnity satisfactory to the Trustee against any loss, liability or expense,
cause the Trustee to pursue remedies.
If there were an actual event of default under the Indenture, it would
constitute an event of default under CEOC's senior secured credit facilities. In
addition, if CEOC's obligations with respect to the Notes are accelerated, it
could trigger events of default under CEOC's other secured and unsecured notes.
These consequences could have a material adverse effect on CEC's and CEOC's
business, financial condition, results of operations and prospects.
CEOC does not believe that a default or an event of default has occurred under
the Indenture. The sale of assets to Caesars Growth Partners followed a
rigorous, independent process which garnered fair value for CEOC and provided it
with liquidity crucial to its business and capital structure plans. The process
included special committees comprised of independent directors of CEC and
Caesars Acquisition Company, the managing member of Caesars Growth Partners.
Each committee received independent legal and financial advice and fairness
opinions related to the transactions and the proceeds of those sales will be
applied in compliance with the indentures. CEOC believes that the Noteholders'
claims with respect to the dispositions of equity interests or assets by
restricted subsidiaries to unrestricted subsidiaries not constituting permitted
investments under the Indenture are baseless and self-serving. Also meritless is
the Noteholders' contention that CEC's previous announcement regarding the
termination of CEC's guarantee of the Notes constitutes a default. As that
announcement indicated, pursuant to the terms of the indentures to which these
creditors agreed, the CEC guarantee terminated when CEOC ceased to be a wholly
owned subsidiary of CEC. The guarantee was included in the indentures at CEC's
request to allow the use of consolidated financial statements, not to provide
credit support. CEC and CEOC have honored and will continue to honor their
obligations under their indentures and expect creditors to do the same.
On June 6, 2014, CEC issued a press release regarding the Notice. A copy of the
press release is furnished as Exhibit 99.1.
The information set forth in this Item 7.01 of this Current Report on Form 8-K
and Exhibit 99.1 is being furnished pursuant to Item 7.01 of Form 8-K and shall
not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, or otherwise subject to the liabilities of that section,
nor shall it be deemed incorporated by reference into any of CEOC's filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, whether made before or after the date hereof and regardless of
any general incorporation language in such filings, except to the extent
expressly set forth by specific reference in such a filing. The filing of this
Item 7.01 of this Current Report on Form 8-K shall not be deemed an admission as
to the materiality of any information herein that is required to be disclosed
solely by reason of Regulation FD.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The following exhibits are being furnished herewith:
99.1 Text of press release dated June 6, 2014