Caesars Palace in Las Vegas
Caesars Palace in Las Vegas ()

Setting the stage for an exit in the costly Caesars bankruptcy, Caesars’ solvent parent company, Caesars Entertainment Corp., announced a deal Tuesday with the bankrupt entity’s creditors.

The $5 billion deal—between Apollo Global Management LLC, TPG Capital Mangement LP and Caesars Entertainment on the one hand, and a group of junior bondholder holdouts on the other—was widely viewed in the financial press as a victory for the bondholders. The sweetened settlement promises to more than double the recovery of the holdouts, who now get a larger stake in the entity that will emerge.

Tapping Jones Day’s Bruce Bennett and a large team, the holdouts, led by hedge fund Appaloosa Management, fought for 22 months over a series of transactions between 2012 and 2014 that they allege fraudulently transferred the operating company’s valuable assets to the PE-held parent company, while leaving the operating unit with $18.4 billion in debt.

The holdouts’ leverage increased in March, when a court-appointed examiner found that Apollo, TPG, and their directors on Caesars’ board might be on the hook for as much as $10 billion from breach of fiduciary duty and other claims related to the disputed transactions. Still, the bankruptcy and its fee-churning engine rolled on another several months without a move toward settlement.

What finally sped things along, say Jones Day lawyers, were two decisions by U.S. Bankruptcy Judge A. Benjamin Goldgar. In August, he refused to extend a stay that had shielded the PE firms and individual directors from litigation; and in mid-September, Goldgar ordered them to submit to creditors’ discovery requests, prompting a final round of negotiations.

Fee Windfall Ending

The agreement, which still has to be approved by the U.S. bankruptcy court in Chicago, means the fees that have fueled more than a dozen firms’ restructuring practices are also coming to an end.

Nine firms have garnered the lion’s share of fees since the company filed for bankruptcy in January 2015, according to court records and lawyers involved. The five firms representing primary parties with courtroom roles earned a collective $118 million to date. Debtors’ counsel Kirkland & Ellis gleaned the most—$57 million, according to fee records approved by the court. (The Kirkland team alone had 22 partners who billed out at more than $1,000 an hour.) Last fall, Kirkland, led by James Sprayregen and David Seligman, successfully overcame a petition by junior noteholders to have the firm disqualified; the noteholders, represented by Bennett at Jones Day, argued that the firm was conflicted because it allegedly represented Caesar’s private equity sponsors prior to representing the operating company.

Winston & Strawn, which represented the court-appointed examiner, earned $28 million on the case. Proskauer Rose, which was tapped by the official committee of unsecured creditors holding about $1 billion in debt, harvested $23 million. And Jones Day, counsel to the junior noteholders holding about $5.5 billion in debt including interest, earned $9.4 million. (The examiner, Richard Davis, a onetime Watergate investigator appointed to examine the disputed transactions, left Weil, Gotshal & Manges in 2012 to form his own firm; he also collected a couple of million dollars in the Caesars matter, court records show.)

Six other firms that didn’t have to file fee applications in the court also garnered fees likely comparable to the others, say parties involved. Kramer Levin Naftalis & Frankel’s Daniel Eggermann and Kenneth Eckstein, co-chair of the firm’s corporate restructuring practice, are advising an ad hoc group of senior noteholders. Paul, Weiss, Rifkind, Wharton & Garrison, led by Alan Kornberg and Jeffrey Saferstein, represented parent company Caesars Entertainment and was involved in the negotiations toward an agreement.

Paul Weiss, which previously had advised both the parent company and the operating unit in two disputed transactions in 2013 and 2014, stepped back somewhat after the examiner found that the dual roles created a likely conflict of interest. After the examiner’s report, the parent company added Milbank, Tweed, Hadley & McCloy’s Paul Aronzon to its roster in the case.

Meanwhile, Apollo looked initially to Akin Gump Strauss Hauer & Feld, and TPG to Kasowitz, Benson, Torres & Friedman. After the examiner’s report, Wachtell, Lipton, Rosen & Katz’s Marc Wolinsky and Harold Novikoff were added to the legal lineup for Apollo.

The pair of private equity owners formed Caesars through a $30 billion leveraged buyout of Harrah’s Entertainment Inc. in 2008, just before the financial crisis. The gaming giant sold less than 2 percent of its shares in a small initial public offering in 2012 that yielded $1 million in legal fees, according to our previous reports.