Congress Is Wrapping A Huge Gift For Private Equity Titans

WASHINGTON -- Private equity giants Apollo Global Management and TPG Group may turn out to be the biggest beneficiaries of a year-end government funding bill, thanks to quiet maneuvering from Senate Minority Leader Harry Reid (D-Nev.) and Sen. Richard Shelby (R-Ala.).

Apollo and TPG own Caesar's Entertainment Corp., a casino empire struggling under a mountain of debt. The company has been warring with its creditors for more than a year, trying to exact concessions without letting a federal bankruptcy judge oversee the rearrangement of the firm's finances. But those efforts run afoul of the Trust Indenture Act, a Depression-era law that bars companies from rewriting debt deals without the permission of all the investors who own that debt. Congressional leaders are now considering blunting the force of that law as part of omnibus legislation that must pass to avert a government shutdown.

Earlier this month, Shelby attempted to attach a similar measure to a highway funding bill, according to sources familiar with negotiations, but the provision was stripped out at the last minute. Now Reid and Shelby are pushing it as a rider to the omnibus spending bill.

Supporters of the change maintain that it would help prevent so-called vulture funds from buying up a troubled company's debt and then stripping its assets in bankruptcy. D. Taylor, president of the hotel and casino union Unite Here, wrote a letter Monday urging Reid to back the measure, saying it would protect 60,000 jobs at Caesar's casinos that could be jeopardized in the bankruptcy process.

While companies can ease their debt burdens in bankruptcy court, they are not necessarily forced to shut down their operations. Instead, judges can oversee negotiations to reorganize the company and its debt. Right now, the Trust Indenture Act empowers individual creditors to insist they get treated fairly in the deal. Changing the law would let major Wall Street investment firms that own distressed companies force concessions from the creditors, including pension funds and Main Street investors. The Wall Street firms would have leverage to demand the kind of unfair deal that a bankruptcy judge would not have approved.

On Tuesday, 18 corporate law professors wrote a letter to Reid and other congressional leaders urging them not to pursue the Caesar's rider. While some of them support amending the Trust Indenture Act, they all said any effort to do so should be a careful and delicate process that includes public hearings.

"The Trust Indenture Act is one of the pillars of American securities regulation," reads the letter, which was also sent to Senate Majority Leader Mitch McConnell (R-Ky.), House Speaker Paul Ryan (R-Wis.) and House Minority Leader Nancy Pelosi (D-Calif.). "A hasty amendment of the Trust Indenture Act could have broad negative unintended consequences in the securities markets."

Disputes over the omnibus spending bill have intensified in recent days. Congress must pass funding legislation by Dec. 11 to avert a government shutdown, but Ryan and others have suggested that it may need a short-term extension of perhaps a week to hammer out the details.

Zach Carter is a co-host of the HuffPost Politics podcast "So That Happened." Subscribe here , or listen to the latest episode below: