Caesars Entertainment Corp. and Education Management Corp.have been stymied in their efforts to influence Congress to changea Depression-era law that's designed to protect lenders, accordingto people with knowledge of the matter.

The casino company owned by Apollo Global Management LLC and thefor-profit college backed by KKR & Co. tried last month toinsert an amendment into an early version of the landmark U.S.transportation bill that would have rolled back part of a 1939 lawknown as the Trust Indenture Act, said the people, who asked not beidentified discussing the actions because they haven't been madepublic. Without the changes, the companies may find it harder towin creditor lawsuits claiming actions they took to revise theirdebt violated parts of the act.

Caesars has said it will probably have to join its bankruptsubsidiary in Chapter 11 if it loses the suits, which are overactions the company took to shuffle debt before the unit filed forcourt protection. Apollo, which controls Caesars along with TPGCapital, could then lose its stake entirely in the casino giant.Education Management may have to pay out junior creditors whodidn't go along with its out-of-court debt reorganization, hurtingthe investment value of KKR, which is among the company's largestequity holders.

Charles Zehren, a spokesman for Apollo at Rubenstein AssociatesInc., Kristi Huller, a spokeswoman at KKR, and Chris Hardman, arepresentative for Education Management, declined to comment. JanJones Blackhurst, a spokeswoman for Caesars, didn't immediatelyrespond to an e-mail message seeking comment.

Worried Investors

Although they were unsuccessful, some investors are worried thatthe companies could try to insert another version of the amendmentsinto the U.S. government's spending bill that needs to be passed byDec. 11, the people said.

The companies' “sole aim is to overturn several federal districtcourt decisions that were not in their favor,” Andrew Milgram,managing partner of Marblegate Asset Management, said in astatement Monday. His firm won a court case against EducationManagement and could be affected by a change in the rules. TheU.S. Court of Appeals for the Second Circuit has agreed to hear thecompany's appeal of the ruling. “We strongly urge Congress to leaveout the erroneous Trust Indenture Act provision in the omnibusbill,” he said.

The proposed amendments would have killed two key provisions inthe existing law that limit what companies can do to modify theirdebt without having creditors demanding to collect on it, saidJulia Winters, a legal analyst at Bloomberg Intelligence.

The changes would have made it more difficult for minoritybondholders to challenge actions companies take in restructurings,according to a Dec. 4 research note by Winters and BloombergIntelligence analyst Philip Brendel.

Under the proposal, creditors would be protected by law only ifa company reduced principal amounts, interest rates or maturitydates, according to a copy of the draft amendment published byPolitico. If a company changed those attributes, bondholders wouldhave the right to get paid back in full.

The Wall Street Journal reported earlier on Caesars'lobbying efforts.

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