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Arnold M. Knightly

Financing problems lead to Fontainebleau layoffs

1 May 2009

and Tony Illia

LAS VEGAS, Nevada -- Contractors on the $3.1 billion Fontainebleau Las Vegas project are laying off workers because the developer has been denied access to part of the $130 million in financing that was going to be used to fund construction, a spokesman for the resort said Thursday.

The contractors began the cuts earlier this week because of concerns they would not be paid on time Thursday, Fontainebleau Las Vegas spokesman Dave Satterfield said. He said that work is continuing on the project but at a slower pace.

One local union official said he has heard the project could be shut down for as long as a month.

"I feel comfortable that (the workers) will be back to work within the next month," Tommy White, secretary-treasurer of the Laborer Union Local 872, said Thursday, adding that his 150 laborers will be let go starting today.

"(The contractors) were aware this was a real possibility." Satterfield said. "They were kept well-apprised of these recent developments. They told (general contractor) Turnberry West they would have to reduce their work force if they didn't get funding on April 30."

Satterfield said the $130 million is controlled by a separate group of lenders than the Bank of America-led group that last week stopped a $800 million loan after telling the developer that it was in default on some of its loans.

The second group of lenders is withholding some of the $130 million loan because of concerns about the other banks' decision to withhold a prearranged loan. Although the lenders are not withholding the entire amount, they are holding enough to affect payments to contractors.

"We expected them to release the money this month, but they declined to do so in light of the revolver bank not providing the $800 million," Satterfield said.

"This underscores how vital it is for the banks to meet their commitment to fund the project," Satterfield said. "Their failure to live up to their contractual commitment is now threatening the livelihood of workers and the pace of construction."

Steve Redlinger, a spokesman for the Southern Nevada Building and Construction Trades Council, an affiliate of 17 labor unions, said the unions were disappointed that the banks' actions have forced companies to lay off workers.

"The decision by the banks is going to have dire consequences for the workers and their families who depend on those paychecks and now will struggle to pay rent and put food on the table," Redlinger said.

Contractors for the project have been slowly reducing their work force all week either through layoffs or by offering furloughs to workers while the developer continues to negotiate with lenders, some workers and union officials said.

Marc Furman, senior administrative assistant for the Southwest Regional Council of Carpenters, said some of his contractors "weren't getting paid in a timely manner," so they started laying off some of the 750 carpenters on the project last week.

The workers are being encouraged to call Senate Majority Leader Harry Reid's office and close any accounts with Bank of America and boycott the financial institution, said a worker who was let go Thursday morning. He asked not to be identified because he was told he could return to work as early as next week.

"They're cutting everybody," the worker said of his contractor. "The only ones left are helpers and apprentices to help clean up and return the rentals."

The workers will return to the 24-acre site today to collect paychecks. More workers are expected to be laid off at that time, workers said.

Satterfield did not know how many workers had been let go. The project had about 3,300 workers on the job last week.

The unions are working with the resort's executives and Reid's office to try to get the workers back to work quickly, Redlinger said, but there will be "some difficult nights and weeks ahead" for the workers the longer they are out.

Contractor officials who have been called over the past several days about the layoffs have not returned calls or have had no comment.

Fontainebleau Las Vegas filed a lawsuit against Bank of America and 10 other lenders for backing out on their agreement to provide the $800 million loan. The lawsuit asserted that the project has not defaulted on any of its loans.

Both parties confirmed Tuesday that they are negotiating "structured financing."