Jim Millstein — Notices of Appearance/News

This week we welcome Max Frumes, co-author (along with The Financial Times’ Sujeet Indap) of the new book, “The Caesars Palace Coup: How a Billionaire Brawl Over the Famous Casino Exposed the Power and Greed of Wall Street.”

PETITION: Hi Max. Thanks for joining us. Let’s cut right to it: you’re in a room in front of 50,000 people who have an interest in private equity and/or restructuring. Why should they care about this story? Give us the elevator pitch.

Max: “If you’re in that crowd, Caesars is THE seminal moment in PE and restructuring. Everything that came before – Michael Milken, the GFC, the mega-LBO, the distressed debt boom – culminated in the fight over Caesars. Everything that’s come after – getting “J. Screwed”, creditor-on-creditor violence, corporate governance games, extreme liability management in the time of coronavirus – can be traced back to Caesars.”

PETITION: For our readers who were either too busy to follow the Caesars situation in real-time or weren’t yet focused on distressed investing, give us the rapid fire version of who the top winners and losers were and, in one sentence, why. Feel free to bullet point it.

Max: “In this case, Appaloosa, Elliott and Oaktree can claim decisive victory over Apollo. While basically every distressed investor did well because the company turned around, those three funds drove the battles that resulted in a court-appointed examiner finding as much as $5 billion worth of credible claims of fraudulent transfers and corporate governance misdeeds that tipped the case. Just those three funds profited in the billions, whereas Apollo and TPG lost their entire initial equity checks. David Tepper not long after the case ended paid a record price for the Carolina Panthers, coincidentally or not.

Ironically, long-term, Apollo might have the last laugh. What others saw as financial shenanigans that crossed the line over and over, LPs saw as a PE firm able and willing to go to all lengths to save an investment. Apollo raised a record $25 billion PE fund shortly after the case. Apollo’s point-men on Caesars are ascendent with David Sambur now the co-head of private equity and Marc Rowan soon to be CEO. What’s more, Apollo is back on the Vegas strip, just last week announcing a deal to buy the Venetian – with the help of the REIT created out of the Caesars bankruptcy.”

PETITION: This bit made us laugh out loud:

“But now, on September 23, 2016, [Jim] Millstein was five years removed from this stint as a Washington insider [serving as Chief Restructuring Officer of the United States]. He had set up his own firm, Millstein & Co., to capitalize on his sterling reputation and experience. However, he had not fully appreciated just how nasty the restructuring world had become in his absence. After having the power of the US Treasury Department behind him for the better part of two years, he now found himself being mistreated by ex-Ivy League jocks almost half his age.”

Care to expound upon this state of affairs?

Max: “There is a ton of money in the distressed asset class relative to the number of good opportunities so it should not be surprising that tempers are short. And while stars rise fast on Wall Street, sometimes judgement and maturity do not advance as quickly as raw horsepower, which Jim Millstein, the Caesars ringmaster, found out the hard way.”

PETITION. Purportedly “independent” directors were very much a part of this story. In what respect to you believe this case affected the use of independent directors in subsequent restructuring situations? Are you surprised to see some of the same players cycling around?

Max: “Totally shocked (I’m not shocked). Caesars provided the perfect test case for what happens when you use an independent director versus when you don’t, regardless of how “ugly” a deal is: Out of all the aggressive pre-petition transactions perpetrated by Apollo, the one the bankruptcy examiner liked the least, he assigned no liability to whatsoever almost entirely due to the fact that newly appointed independent directors signed off. From then on, law firms have figured out how and when to parachute in "independent" directors to cleanse messy transactions. Everybody by this point is in on the joke.”

PETITION. Put yourself in the shoes of an MBA student. If you’re considering interviewing with a large private equity shop, what’s your main takeaway from the book? Then do the same exercise for a third year law student looking to get into big law.

Max: “The key takeaway for both the business and the law students should be just how interconnected the two are once you get to the big leagues. The distressed investment theses in Caesars required weighting probable versus possible legal outcomes in addition to understanding the underlying business, not to mention the skill needed to whip up a precise cap table. And the best lawyers in the case understood the dollars that hinged around each minute legal fight. Deep down, however, I hope students take away that they should just spend a few years in big law or finance before finding their true calling as a journalist.”

PETITION: Creditor-on-creditor violence has obviously been a hot topic lately — something you quickly mention at the end of the book (referring to J.Crew and Serta Simmons, specifically). Whether it’s TriMark USA, Revlon Inc. ($REV), Tupperware Corporation ($TUP), Transocean Ltd. ($RIG), or Boardriders, market participants are getting buried alive. We point out that the volume of shady-cum-combative deals always seems to increase when there isn’t a ton of distressed activity out there and funds are scratching and clawing for returns. Are there any recent situations that have piqued your interest lately and why? In what way, if at all, do they give you PTSD after spending four years writing this book? Is there one, specifically, you’d love to write about?

Max: “Love the question, and my team at LevFin Insights has been in the weeds on each of those deals. What is interesting about this world is how the same sets of funds and the lawyers and bankers all end up on different sides making arguments that they complained about in the case before. Apollo was the sponsor in Caesars but is a creditor in Serta Simmons and AMC. Oaktree, in orchestrating the priming deals in TriMark and Boardriders, was even called out for acting like Apollo. AMC may be the most fun one of late because of the crazy Reddit fireworks that helped keep the company out of bankruptcy.”

PETITION: We’d be remiss if we didn’t acknowledge the small “Notes and Sources” section at the very end of the book. You and Sujeet expressly call out Paul Weiss for their antics as you both worked on this project. You write:

Paul, Weiss, after repeatedly ignoring our inquiries in 2019, eventually agreed to only respond to written questions. The set of limited responses it sent back to us in December 2019 was almost immediately followed by a remarkable letter that demanded that we turn over our manuscript as well as a list of Paul, Weiss sources that they believed we had approached outside of official channels. The letter went on to accuse us of acting in bad faith and culminated with a threat to sue us for defamation (all well before a first draft of this book existed).

You continued:

We share these events to underscore the strong feelings that underlie the Caesars story and to demonstrate how the news media continues to face undue harassment from powerful forces, like Paul, Weiss, for simply attempting to do its job.

Do you have anything else to add to this now that the book is out?

Max: “Intimidation and bullying do work sometimes when powerful forces are trying to silence underfunded news outlets and journalists. So first, support good journalism (especially investigative work done by places like ProPublica and Reveal). But more importantly, I believe those powerful forces are better served by not fighting it; don’t obfuscate, own mistakes, right wrongs, and vie to be better if, in the light of day, those things turn out to be ugly.”

PETITION: When you guys set off to write this book was there a model for you? What prior book, if any, served as your inspiration here?

Max: “I mean both of us marvel at James Stewart, especially the Den of Thieves. And like a couple of guys shooting fadeaways in the driveway thinking “Kobe!”, greats we tried to emulate included Connie Bruck’s Predator’s Ball, Bethany McLean and Peter Elkind’s Smartest Guys in the Room, and Bryan Burrough and John Helyar’s Barbarians at the Gate (which our book is frequently next to on Amazon, which is kind of exciting!).”

PETITION: Thanks Max. Good luck to you and Sujeet with the book.