Caesars = "One of the Great Messes of Our Time"?

The Embattled Caesars Entertainment is FINALLY out of Bankruptcy

Last week we highlighted this tweet that poked fun at recent asset stripping (aka dropdown financing) strategies. Great timing, if we do say so ourselves, as Caesars Entertainment has finally emerged from bankruptcy. Not great timing? This (note our reply).

To commemorate Caesars' accomplishment, the Financial Times published this post-mortem (warning: firewall). It’s a solid read. 

A few bits we wanted to highlight:

THIS is understanding who is boss: “One hedge fund investor wondered, then, if the advice of bankers was intrinsically tainted. ‘Private equity firms cut a wide swath,’ the investor said. ‘You do not want to cross them and risk the golden goose.’”

THIS is how you advocate for your client: 

“…[A] lawyer at Paul Weiss who represented the parent Caesars company controlled by Apollo and TPG and who is the longtime outside counsel to Apollo, responded: “I have been a restructuring and bankruptcy lawyer for 28 years and I do not believe David Sambur was more difficult in the Caesars case than anyone else nor in any other transaction I have worked on. David was completely fair and responsible.’” Hahaha. What else is he going to say about his “longtime” client? “Yeah, sure, FT, he was the biggest a$$ imaginable.” Talk about not wanting to cross and risk the golden goose. P.S. Mr. Sambur is now on the board of the reorganized entity. Sounds like a solid source of recurring revenue for a loyal...uh, we mean, commercial, lawyer. 

THIS is key advice (in the comments) to in-house legal representing bondholders: “‘Baskets’. Devil in the detail [sic]”. See, e.g., J.Crew. Haha. YOU THINK?

P.S. There appears to be some healthy skepticism about Caesars' long term outlook. 

Reasonability of Fees

We want to apologize for an issue related to last week's newsletter; we failed to recognize that the (Amazon Web Services') link embedded in our feature (apparently) expires with time. Sorry about that. 

The right information could be found all week on our website (hint, hint) and we encourage you all to visit it here. The upshot is that an Iowan judge gave Weil a beating because of redonk fees. But don't take our word for it: the opinion is worth a read if for no reason other than its sheer comedy. We enjoyed where the Court indicates that Weil argued that the fees were reasonable because, well, they're Weil, damn it, and they damn well said the fees were reasonable. 

On the subject of fees and billing, the opinion wasn't nearly as amusing (or bemusing, depending on your POV) as this quote from a Caesars-related story from Q4 '16: "The advisory firms have adopted the attitude that every possible land grab that is is worth chasing. These firms have no capital markets businesses and just outsource the work to JP Morgan and the like. These fees are just a tax on the estate. The creditors are doing most of the work here and these restructuring proposals are really ours [creditors]. But the legal departments of these investment banks are crafty. Debtors have to be more responsible on the front end of an engagement. The problem is that the debtors’ lawyers are completely and utterly conflicted. The bankers are often former restructuring lawyers themselves and they are all just referring each other business. This has become a feeding frenzy." 

In many ways, the problem stems from information dislocation. The buyside appears to be getting sick of WSJ headlines about fees - whether they're in Caesars or Lehman Brothers. And so tighter and tighter DIP budgets are becoming the norm and professionals are increasingly expected to agree, upfront, to some fee concessions. But company management teams aren't nearly as savvy; they don't know where to find out what "market" engagement terms are. Certain resources that track this information are firewalled unless you pay tens of thousands of dollars for access. So, who is going to educate management? Debtor's counsel? If the quote above is any indication - and referrals truly are traded like chips - that may be asking for a lot. And so don't be surprised if there are more activist judges opining on the reasonability of fees going forward.