EFiled: Nov 25 2014 11:33AM EST Transaction ID 56383574 Case No. 10393- IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE UMB BANK, solely in its capacity as Indenture ) Trustee under that certain indenture, dated as of ) February 14, 2012, governing Caesars ) Entertainment Operating Company, Inc.’s 8.5% ) Senior Secured Notes due 2020, ) ) Plaintiff, ) ) v. ) C.A. No. ____________ ) CAESARS ENTERTAINMENT CORPORATION, ) CAESARS ENTERTAINMENT OPERATING ) COMPANY, INC., CAESARS ) ENTERTAINMENT RESORT PROPERTIES, ) LLC, CAESARS ACQUISITION COMPANY, ) CAESARS GROWTH PARTNERS, LLC, ) CAESARS ENTERPRISE SERVICES, LLC, ) GARY LOVEMAN, JEFFREY BENJAMIN, ) DAVID BONDERMAN, DONALD COLVIN, ) KELVIN DAVIS, FRED J. KLEISNER, ERIC ) PRESS, MARC ROWAN, DAVID SAMBUR, ) LYNN C. SWANN, CHRISTOPHER J. ) WILLIAMS, JEFFREY HOUSENBOLD, ) MICHAEL COHEN, ERIC HESSION, RONEN ) STAUBER, AND STEVEN WINOGRAD, ) ) Defendants, ) ) and ) ) CAESARS ENTERTAINMENT OPERATING ) COMPANY, INC., ) ) Nominal Defendant. ) VERIFIED COMPLAINT UMB Bank, in its capacity as Indenture Trustee under that certain indenture, dated as of February 14, 2012, governing Caesars Entertainment Operating Company, Inc.’s 8.5% Senior Secured Notes due 2020 (“Plaintiff”), for and on behalf of itself and (on certain claims) derivatively for the benefit of Nominal Defendant Caesars Entertainment Operating Company, Inc., by its attorneys, for its Complaint against Defendants (“Defendants”), alleges based on the information disclosed by Defendants and information as to which Plaintiff has personal knowledge and otherwise upon information and belief, as follows: I. NATURE OF THE ACTION 1. This is a case of unimaginably brazen corporate looting and abuse perpetrated by irreparably conflicted management. As chronicled below, in little more than six months, Defendant owners, fiduciaries, and affiliates of a hopelessly insolvent Delaware corporation, Caesars Entertainment Operating Company, Inc. (“CEOC”), have stripped CEOC of eight of its most valuable hotel, casino, and entertainment properties—including a six-property stronghold in the heart of the Las Vegas Strip—on terms that were patently unreasonable in order to enrich themselves at the expense of CEOC’s creditors. Because of these actions, a hollowed out CEOC today retains only a portion of a single property on the Strip, which Defendants have recently threatened to take as well. Defendants also siphoned CEOC’s other valuable assets, including its customers and industry 2 leading “Total Rewards” customer loyalty program, its lucrative online gaming platform, and even its cash. Through this epic and fraudulent scheme of asset stripping, and the purported release—effected through a sham equity investment— of the guarantee of CEOC’s debts by its parent, Defendant Caesars Entertainment Corporation (“CEC”), Defendants have thoroughly ransacked CEOC in a sweeping and now transparent plan to take CEOC’s prime assets for themselves and leave its liabilities and creditors behind. 2. To date, Defendants have effectuated a series of shameless giveaways and other transactions that have robbed CEOC of more than $4 billion in value and counting, leaving CEOC’s longstanding creditors with no hope of being repaid. Between just October 2013 and May 2014, Defendants caused CEOC to surrender on unconscionable terms—and without any rational business purpose—the following operating assets that were worth, collectively, at least $3.6 billion more than CEOC received for them: Eight prime hotel and casino properties, including CEOC’s six-property stronghold in the heart of the lucrative Las Vegas Strip, and its two most attractive regional properties in Baltimore and New Orleans; 50% of the management fee stream for these properties—fees that CEOC was forced to give up while it remained responsible for 100% of the management costs; Valuable intellectual property including the Total Rewards® customer loyalty program (“Total Rewards”), which historically funneled customers from CEOC’s regional properties to its prime Las Vegas properties, but which now funnels business away from CEOC’s holdings and to those same 3 properties that have been transferred by and/or to Defendants for grossly inadequate consideration; and CEOC’s lucrative online gaming business (Caesars Interactive Entertainment (“CIE”)),which continues to benefit from the rapid anticipated growth in online gaming (growth for which CEOC continues to foot the bill for lobbying expenses needed to support legislation to legalize and expand online gaming, despite having transferred all of its online gaming interests to CEC, which retransferred them to Caesars Growth Partners, LLC (“CGP”)). 3. Put another way, as Defendants assiduously worked to transfer assets conservatively worth over $7 billion away from CEOC, without any legitimate commercial justification, for far less than reasonably equivalent value, and for the principal purpose of attempting to put those assets beyond the reach of CEOC’s creditors, they simultaneously looted nearly 60 cents or more of every dollar in value they took. 4. In addition to the unconscionable forced surrender of these valuable assets, Defendants pirated over half a billion dollars of additional value including, inter alia, by: Forcing CEOC to pay down the entirety of the $616 million outstanding under an intercompany “credit arrangement” with CEC where the loan was unsecured, carried a de minimis interest rate, and would not mature until November 14, 2017; Compelling CEOC to use the proceeds of a new $1.75 billion first lien loan (the “New B7 Term Loan”) to purchase from CGP, at more than 100 cents on the dollar, CEOC-issued notes that CGP purchased from CEC less than a year ago at double-digit discounts to par value; 4 Effecting the payment of hundreds of millions of dollars in “so-called” management fees to CEC’s two private equity owners (the “Sponsors”1); Causing CEOC to shutter the valuable Showboat casino in Atlantic City, which was producing positive EBITDA (as it has every single year since its founding in 1987) but threatened to compete with other, non-CEOC owned properties controlled by Defendants; and Earlier this month requiring CEOC to prepay additional unsecured notes, over a quarter of which are held by CEC or its non-CEOC affiliates, more than three years prior to maturity and at substantial premiums to par. 5. This extraordinary tally of over $4 billion of value does not even include the release of CEC’s guarantee of CEOC’s debt—a release that itself would be potentially valued at as much as $4 billion or more—that Defendants purport to have secured through the orchestration of a sham equity investment. These and the other transactions described herein together comprise Defendants’ ongoing scheme to loot CEOC’s most valuable and promising assets and leave it as an effectively judgment-proof shell unable to make good on its obligations to its creditors. 6. Defendants like to dress up their outright looting as “deleveraging” CEOC’s balance sheet—but even a cursory review of Defendants’ actions reveals that the forced sale of valuable assets from a hopelessly insolvent CEOC to its affiliates for a fraction of what they are worth destroys CEOC’s future. Far from 1 The two private equity sponsors are Apollo Global Management, LLC (“Apollo”) and TPG Global, LLC (“TPG”). This definition also includes certain undisclosed co-investors who contributed a portion of the equity purchase price of CEC in the leveraged buy-out (“LBO”). 5 offering CEOC a viable path forward, these machinations are a bridge to nowhere for both CEOC and its creditors. As recently described by gaming industry consultant Alan Woinski: “They went private and then they were able to screw around with their debt long enough and did what we call ‘extend and pretend’— they extended out the maturities and just put new debt on top of old debt, and the pretend part is pretending that someday they’d be able to pay it off.”2 7. CEOC’s slavish obedience to the self-serving whims of its parent, CEC, and the Sponsors is indefensible. Every day Defendants maintain control over CEOC is another opportunity to strip out the last remaining value from CEOC’s decaying carcass while simultaneously running the clock on the preference and fraudulent transfer look-back periods in advance of CEOC’s inevitable collapse into bankruptcy.3 The fox has not only been put in charge of 2 Jon Lentz, Divide and Conquer: Could Caesars’ Debt Count it Out in New York?, City & State (Sept. 15, 2014), available at http://www.cityandstateny.com/2/83/gambling/divide-and-conquer-could-caesars- debt-count-it-out-in-new-york.html#.VDlP_PldX_k (“City & State, Divide and Conquer”). 3 See Henny Sender, Game of poker over Caesars Entertainment heads to the courts, Financial Times (Aug. 12, 2014) (“Asset transfers from the operating company, [CEOC], have left that part of the business leveraged almost 20 times, according to Kim Noland, an analyst with research boutique Gimme Credit. ‘The situation is so compromised that severely negative cash flow will ultimately require a restructuring that implicates all debt levels including the first lien debt,’ she said.”), available at http://www.ft.com/intl/cms/s/0/61296e58-1f1d-11e4-9689- 00144feabdc0.html#axzz3FTrqoZua (“Financial Times, Game of Poker”); Moody’s Investors Service, Caesars Entertainment Asset Sales are Weakening the Hand of Creditors, at 1 (May 2, 2014) (“An eventual restructuring at Caesars is 6 the hen house; it has barricaded the door and has even paid itself a salary.4 Absent action from this Court, Defendants will continue to strip CEOC’s assets until its other stakeholders are left with nothing. 8. Directors of an insolvent Delaware corporation are not permitted to plunder the corporation in this way for their own benefit. Defendants’ unchecked exploitation of CEOC must stop. By this Complaint, Plaintiff respectfully asks this Court, inter alia, to appoint a receiver to put an end to Defendants’ unabashed pillaging and to order the return of previously-transferred valuable assets to CEOC for the benefit of all of its stakeholders.