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Where debt sits decides who's paid
Caesars carried two kinds of debt. Some was backed by the cash flows of the operating company, the Opco. The rest was commercial mortgage debt raised at the property company, the Propco, and backed by the physical casinos.
An Opco creditor can't simply go after the casinos, because the mortgage lenders get first claim on them. Where the debt was taken out decides who can come after what in a bankruptcy, and it all rolls up into the parent company.
Picture Kim Kardashian owning her Skims business, the Opco, and her Calabasas house, the Propco. If she took out debt against Skims and filed for bankruptcy, a lender could not go after the Calabasas house, because the mortgage lender is the one who can foreclose there.
Why do mortgage lenders get the first claim?
A mortgage is secured by a recorded lien on the property. That lien lets the lender foreclose on the building if the loan goes unpaid. A lender who lent against cash flow has no such claim on the building. Secured creditors are paid from their collateral before unsecured creditors.
Why split a company into Opco and Propco?
The split separates the real estate from the business that runs on it. Real estate can then be mortgaged, sold, or placed in a real estate investment trust, which leases it back to the operator. The operating company pays rent to use the buildings. Caesars' property company later emerged as the REIT VICI Properties.
How does bankruptcy rank competing claims?
Secured creditors are paid from their collateral first. Next come administrative expenses and certain priority claims, then general unsecured creditors, then shareholders. This ordering is laid out in the US Bankruptcy Code. Section 507 lists the priority claims.
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