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Arnold M. Knightly

Fontainebleau judge appoints examiner to sell project

9 October 2009

LAS VEGAS, Nevada -- The judge overseeing the Fontainebleau Las Vegas bankruptcy case Thursday decided to appoint an examiner to try to sell the stalled project instead of converting the case into a Chapter 7 liquidation.

U.S. Bankruptcy Judge A. Jay Cristol said he wants to keep the developer involved in the case, but wants a sale of the stalled Strip project to proceed quickly.

"My goal is to move things along and not delay," Cristol said in court.

Fontainebleau had asked the judge to delay a decision on appointing an examiner for a week while the developer negotiates with potential buyers.

"There is active interest and we have arranged several tours of the property," Fontainebleau attorney Scott Baena said. "There are quite a few potential bidders."

Fontainebleau Las Vegas officials declined to comment on Cristol's decision, as did a potential bidder on the project, Penn National Gaming.

Penn emerged as a bidder for the bankrupt project this week, reportedly offering less than $300 million for the stalled project.

The Wyomissing, Pa.-based gaming company is scheduled to continue negotiations today with some of the creditors of the project, Las Vegas-based attorney Greg Garman told the court.

Garman, who represents a group of contractors holding mechanics liens against the project, told Cristol that Penn is offering "substantially less" than $300 million although he would not give a figure.

Construction on the mixed-use project is 70 percent complete and it has been estimated at least another $1.5 billion will be needed to complete construction.

The amount of funding needed to complete the project could prove too much for many potential bidders to overcome, Cristol said.

"I'm not sure there are many people with a few hundred million dollars to bid and then have a billion dollars or more in their back pocket to complete the project," Cristol said.

One group that may no longer be interested in acquiring the project is New York-based private equity firm Apollo Management.

The law firm representing Apollo filed a notice of withdrawal with the court Oct. 5.

The Review-Journal reported in June that representatives from Apollo, which owns a 50 percent stake in Harrah's Entertainment, had toured the project.

Court motions filed by Miami-based Fontainebleau Resorts may signal the developer has given up hope of getting the project restarted soon.

Cristol approved a Fontainebleau Las Vegas motion Monday to cancel a lease for 26 acres of land that was being used as a construction staging area for the Strip project.

The former Wet 'n Wild site was costing the developer $350,000 a month and was being used to store materials and equipment that were to be delivered to the project. It was also a parking lot for subcontractors and their employees.

The lease agreement, signed in April 2007, was set to expire next month.

Cristol also granted Fontainebleau's request to terminate two construction trailer leases costing the developer as much a $578 each per month.

Fontainebleau Las Vegas and two affiliates filed for Chapter 11 bankruptcy protection June 9, listing assets and debt of more than $1 billion each.